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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-23373
LANDMARK SYSTEMS CORPORATION
(Exact name of Registrant as specified in its charter)
VIRGINIA 54-1221302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12700 Sunrise Valley Drive, Reston, Virginia 20191-5804
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 703-464-1300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
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Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of registrant's voting stock held by non-affiliates
as of March 3, 2000, was $42,533,159 based on a market price of $ 6.375 per
share.
The number of shares of the registrant's Common Stock outstanding as of March 3,
2000 was 12,909,901 shares.
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The following document is hereby incorporated by reference into this Form 10-K:
Portions of the Registrant's 2000 Proxy Statement to be filed with the
Securities and Exchange Commission (Part III).
Some of the statements in this Annual Report on Form 10-K are "forward-looking"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are related to anticipated future operating results. Specifically, the following
may be impeded by events that have not been presently anticipated: the timing of
the release of new products, the sale of unbilled accounts receivable, the
upgrade of the Company's development environments, the Company's ability to sell
or issue equity or debt securities or to enter into credit facilities on
acceptable terms, the Company's ability to make its acquisitions accretive, the
success of the Company's more focused sales approach and the Company's ability
to increase license revenues, maintain the level of maintenance renewal rates
and limit cost of sales, and the ability of existing and planned hardware and
software systems to accommodate transition to the Euro without material effect
on results of operations or financial condition. Forward-looking statements are
based on management's current expectations and assumptions, which may be
affected by a number of factors, including, without limitation, a lengthening of
the sales cycle possibly attributable to Year 2000 issues and/or other timing
issues, competitive product introductions, price competition, the Company's
ability to consummate license transactions as anticipated, any failure or delay
in the Company's ability to develop and introduce new products, seasonal factors
affecting the Company's sales, the Company's ability to attract and retain
qualified technical, sales, managerial and other key personnel, the Company's
ability to manage expenses effectively, the recent introduction and subsequent
fluctuations in value of the Euro currency, the "Year 2000" software and systems
issue, and other factors. Therefore, there can be no assurance that actual
future results will not differ materially from anticipated results.
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PART I
ITEM 1. BUSINESS.
GENERAL
Landmark Systems Corporation ("Landmark" or the "Company") is a leading provider
of performance management software products which measure, analyze, report and
predict performance for both mainframe and client/server computing environments.
Landmark's PerformanceWorks(R) product family is distinct in its ability to
monitor the key components of a computing environment, provide early warning of
potential system problems and enable effective planning for changes in the
computing environment. The Company believes these capabilities improve user
productivity, reduce computing costs, increase system availability and optimize
use of system resources. Landmark's products provide performance management
capabilities for many leading hardware platforms; certain operating systems from
DEC, Hewlett-Packard, IBM, Microsoft, NCR and Sun; certain databases consisting
of DB2, Oracle, SQL Server and Sybase products; and certain vendor applications
such as IBM's CICS and MQSeries, as well as proprietary customer applications.
Each of Landmark's products has been developed to work with different
configurations of system components from multiple vendors while providing
comparable functionality across each platform. As of December 31, 1999, Landmark
had licensed over 21,200 copies of its products and has approximately 3,600
active customers worldwide.
Performance management software can provide early warning and facilitate
resolution of system problems by monitoring a system's key components, including
the central processing unit ("CPU"), memory and storage, input/output ("I/O"),
disk space, workload, operating system and network subsystems application.
Identifying and addressing system problems allows businesses to increase system
availability, improve user productivity, reduce computing costs and limit the
adverse business effects of system degradation. Performance management tools
also enable organizations to model or predict system and application performance
which improves the acquisition, development and implementation of new or changed
applications and hardware.
Landmark's PerformanceWorks product family enables businesses to optimize system
performance and resource utilization while maintaining a high and consistent
level of user productivity. Landmark's products provide the ability to transform
raw data into useful information through an intelligent aggregation and
automatic summarization process, which collects data on a continuous basis and
generates summary information at prescribed intervals. This data can be measured
against a variety of performance thresholds and easily formatted into
understandable reports to facilitate the quick identification and resolution of
performance problems. In addition, Landmark's products self-manage the
collection, summarization and distribution of performance data, and consequently
require minimal computing and personnel resources. As a result of this efficient
gathering, storage and presentation of performance data, Landmark's products are
scalable to accommodate system growth.
Landmark's solutions are based on its "lifecycle" view of performance management
and are designed to allow customers to address each stage of the application
lifecycle: planning, development and production. Landmark views performance
management as a continuous process in which each stage of the application
lifecycle provides input and feedback for the next.
PLANNING STAGE. Landmark's products are used to identify resource
requirements and to establish appropriate service levels through modeling,
trend analysis and load simulation (simulating use of computing resources
at different percentage levels of total capacity).
DEVELOPMENT STAGE. Landmark's products perform application tuning
(adjusting applications to optimize performance), assist in stress testing
(simulation of maximum workloads on computing resources) and conduct
resource impact analysis to assess application performance prior to
deployment.
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PRODUCTION STAGE. Landmark's products provide data collection, real-time
monitoring and troubleshooting to provide optimal system operation.
After the initial deployment is completed, the application lifecycle begins
again with planning for additional deployments or modifications to the
computing environment.
Through its maintenance and support program, Landmark offers its customers
extensive technical support, including telephone consultation, product
maintenance and product upgrades. Landmark also provides its customers with
consulting and training services. Historically, 85 to 90% of Landmark's
customers have renewed their support and maintenance arrangements with the
Company.
TECHNOLOGY AND PRODUCTS
The PerformanceWorks family of products is comprised of PerformanceWorks for
MVS, PerformanceWorks for VSE, PerformanceWorks for UNIX and PerformanceWorks
for Windows NT. PerformanceWorks enables a user to monitor and analyze
performance metrics in three different timeframes: real-time, recent-past and
historical.
- REAL-TIME MONITORING. Real-time monitoring allows users to view the
current status of the computing environment. To do this, performance
metrics are collected from throughout the system and displayed
graphically at a single workstation. The real-time monitoring feature
can be used as an early warning tool by establishing thresholds against
which critical performance metrics are measured. If a metric or
combination of metrics exceeds the established threshold, an alarm is
generated to notify the user of a potential system or application
problem. The user is then guided through increasingly detailed levels
of performance data until the cause of the problem is identified. The
user can then either solve the problem or an automated action can be
triggered to correct the problem.
- RECENT-PAST MONITORING. Recent-past monitoring displays the performance
metrics collected within the past few minutes or hours. If a system has
experienced a degradation in performance, recent-past monitoring can be
used to review the performance metrics leading up to the occurrence of
the problem to help identify its source and to facilitate a resolution.
Recent-past monitoring can also be used to identify trends in system
utilization and performance which may result in system errors. These
trends can be used to predict and prevent future system problems.
- HISTORICAL DATA ANALYSIS. Historical data analysis is used to review
performance metrics collected over days, weeks and months to understand
how system resources have been used and whether trends have developed
which could lead to future performance problems. Landmark's products
automatically store and aggregate performance data so users can quickly
retrieve and view information over the desired period of time from
multiple systems on one report.
Technology
The technology underlying the PerformanceWorks family of products is based on a
multi-tiered architecture which can be represented by a data collection layer, a
core services layer and a user interface and external tools layer.
DATA COLLECTION LAYER. The data collection layer consists of PerformanceWorks
agents, referred to as "SmartAgents," designed to collect performance data
automatically for on-line analysis and historical data storage and to translate
the data into useable information. SmartAgents are installed on each element in
the computing environment for which performance metrics will be monitored and
automatically collect performance data at set intervals. After collection,
SmartAgents compare the collected information against defined thresholds. If any
threshold is exceeded, the SmartAgent will generate a warning or error message.
CORE SERVICES LAYER. The core services layer is comprised of three key
components: data management, data brokering and network services.
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DATA MANAGEMENT. The data management component manages the storage and
retention of performance data throughout the system and includes the
following functionalities:
- Data normalization gathers disparate performance data and normalizes it
into common categories, such as CPU, memory, disk I/O, workload, disk
space and network. Users can view similar performance data from
different hardware platforms, operating systems and databases and
easily make comparisons and draw conclusions.
- Data summarization averages performance data into logical intervals of
minutes, hours, days, weeks, months and years. Without time-consuming
preparation, users can view data in various formats in order to
identify trends quickly.
- Data administration records all information in a data store, allowing
users to manage and protect performance data. Data administration also
provides efficient storage of collected performance data.
DATA BROKERING. The data brokering component receives all incoming requests
and routes them either to the appropriate SmartAgent for real-time data or
to a data store for historical data without requiring that the end-user
have knowledge of where these components are located.
NETWORK SERVICES. The network services component provides a registry and
look-up service that allows transmission of real-time, recent-past and
historical performance data from where it is collected to where it is used.
Since the architecture of a distributed computing environment frequently
changes with the addition or deletion of servers, applications and users,
the registry is designed to automatically communicate changes in system
configuration.
Landmark supports third-party applications and access to performance data by
publishing detailed record formats and by providing application programming
interfaces ("APIs") for standard Open Data Base Connectivity ("ODBC")
applications and Simple Network Management Protocol ("SNMP") interface modules
for industry leading systems and network management frameworks.
USER INTERFACE AND EXTERNAL TOOLS LAYER. The user interface for PerformanceWorks
allows users to view and analyze the status of their critical applications.
Performance management data for each application can be viewed statistically and
graphically to show consumption of system resources, proximity to critical
threshold values and alarm situations requiring immediate attention. In
addition, users can generate customized reports incorporating any combination of
real-time, recent-past and historical performance data analyses. The available
user interfaces operate using Motif (UNIX), Windows 95/98/NT (NT), OS/2
(MVS-NaviPlex) and 3270 (MVS and VSE).
In addition to the user interfaces provided directly by Landmark's products,
customers can also gain access to PerformanceWorks data through the use of
external tools provided by third-party vendors. Published record formats are
utilized by third-party vendor products such as Computer Associates MICS,
Merrill Consultants MXG, IBM SNAPSHOT, SAS and BGS Systems Best/1. ODBC
connectivity permits a multitude of applications, including Microsoft Excel and
Lotus 1-2-3, to be used to process, analyze, and report on the performance data.
In addition, SNMP integration modules allow PerformanceWorks products to operate
within leading systems management frameworks including IBM Netview, Tivoli TME,
Hewlett-Packard OpenView, Computer Associates Unicenter, Cabletron Spectrum and
Sun Solstice.
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Products
The ability to monitor performance metrics from each system component in a
complex, heterogeneous computing environment is a key feature of Landmark's
software, particularly because performance problems in these environments can
originate from any one or a combination of components.
If applications running in a distributed environment are experiencing slow
response time, the cause of the problem could be a memory problem on the
distributed application server, a disk contention problem (where two or more
applications are attempting to access the same data simultaneously) on the
mainframe database server, an overloaded network, a poorly written application
or any combination of these conditions. By monitoring performance data from each
of the system components, Landmark's products are able to efficiently identify
the source of the problem so a solution can be implemented quickly or the
potential problem can be anticipated and avoided altogether by taking immediate
corrective actions. The Company believes its users benefit from the ease of use,
depth of metrics and diagnostic tools it provides, as well as the level of
intelligent integration, which allows enhanced manageability in production
environments.
Landmark's products are easily installed and implemented and generally do not
require additional customization before the products can be used by the
customer. The Company's products are also easily tailored so that the
performance metrics, data retention standards and data storage locations are
appropriate for each customer.
LANDMARK'S FAMILY OF PERFORMANCEWORKS PRODUCTS
<TABLE>
<CAPTION>
MVS VSE UNIX WINDOWS NT
--- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Core Performance MVS VSE HP-UX Windows NT
Monitor
CICS/MVS CICS/VSE IBM/AIX SQL Server
CICS/ESA VM Contention SUN/OS
VTAM Monitor NCR
DB2 Sun Solaris
SQL/Capture Oracle
MQSeries Sybase
IMS/DBCTL
Applications Response SmartWatch SmartWatch SmartWatch SmartWatch
Monitor
MQControl MQControl MQControl MQControl
WebWatcher WebWatcher
Capacity Planning Interface Interface to Predictor Predictor
to third-party
third-party software
software
User Interface NaviGraph NaviGraph SmartStation SmartStation
3270 3270
NaviPlex
Integrated Interfaces SNMP SNMP SNMP
NMVT ODBC ODBC
Vendor
API's
Disk Space Management RTD
</TABLE>
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The Company derived 82.2%, 85.0% and 87.0% of its total revenues from mainframe
products and services in 1999, 1998 and 1997, respectively. For additional
information regarding the Company's financial performance by product group, see
Note 7 - Segment Information in the Company's Notes to Consolidated Financial
Statements contained elsewhere in this Form 10-K.
PERFORMANCEWORKS FOR MVS. PerformanceWorks for MVS is Landmark's integrated set
of performance management tools for use in the MVS environment and consists of
The Monitor for CICS, The Monitor for DB2, The Monitor for MVS, The Monitor for
VTAM, The Monitor for MQSeries, The Monitor for IMS/DBCTL, NaviGraph and
NaviPlex. Landmark's family of MVS products provides a complete solution for
optimizing and monitoring environments running the MVS operating system.
The Monitor products support data collection in the mainframe environment
for real-time, recent-past and historical performance management
monitoring. Each of these products incorporates Landmark's Navigate
technology which provides intelligent transfer of control from one monitor
to another, facilitating intuitive problem solving.
NaviGraph provides users with a graphical display of the performance of key
applications and system resources. NaviGraph is an easy-to-use,
Windows-based display providing a single point of access and control for
monitoring and analysis of the data collected by The Monitor products.
NaviPlex is designed for IBM's Parallel Sysplex technology which introduces
to mainframe environments performance complexities similar to those of a
distributed processing environment. NaviPlex consolidates performance
information from all MVS system environments into a single workstation for
managing performance issues, handling exception conditions and trending
information.
PERFORMANCEWORKS FOR VSE. PerformanceWorks for VSE is similar to
PerformanceWorks for MVS in terms of the performance management functionality.
PerformanceWorks for VSE includes The Monitor for VSE, The Monitor for CICS,
NaviGraph and VM Contention Monitor.
PERFORMANCEWORKS FOR UNIX. PerformanceWorks for UNIX is Landmark's integrated
set of performance management tools for use in the UNIX environment and consists
of SmartAgent for UNIX, SmartAgent for Oracle, SmartAgent for Sybase,
SmartStation and Predictor.
SmartAgent for UNIX, SmartAgent for Oracle and SmartAgent for Sybase
provide collection of performance metrics for each UNIX operating system
and database supported. Specific metrics collected vary with the individual
platforms. SmartAgents employ the Core Services features of the
PerformanceWorks architecture to manage, analyze and present performance
data across tens or hundreds of locations operating with hundreds or
thousands of servers.
SmartStation provides a central control point to access performance
information collected by SmartAgents. Information is presented in
easy-to-understand charts, graphs, reports and gauges. Alarms alert users
to potential system problems before they become serious. SmartStation
provides a complete set of pre-configured reports and graphics, which can
be tailored to users' specific needs. Users can also define exception
conditions, and SmartStation will provide an alarm when performance
thresholds are exceeded. The alarms provide the user with an explanation of
the error, sending notifications through email systems, alphanumeric pagers
and management platforms. In addition, the alarms can be configured to take
corrective actions automatically. Whether the user sits in front of a
UNIX/Motif workstation or a Windows 95/98/NT workstation, the Java-based
SmartStation can be used to manage all of PerformanceWorks for UNIX and
PerformanceWorks for NT from one desktop.
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Predictor is a capacity planning tool designed to help planners in
determining the types and quantities of new equipment and software required
to handle increased system utilization and performance requirements. Based
on the performance metrics stored for historical data analysis, Predictor
can predict the impact of adding new applications, modifying an existing
application, removing an application, adding users, changing the server
hardware configuration or changing the server entirely. Predictor can be
used to predict future behavior of UNIX and Windows NT servers.
PERFORMANCEWORKS FOR WINDOWS NT. PerformanceWorks for Windows NT is similar to
PerformanceWorks for UNIX in terms of the performance management functionality
of products currently available in the Windows NT environment. PerformanceWorks
for Windows NT includes SmartAgent for NT, SmartAgent for SQL Server, SmartAgent
for Sybase, SmartAgent for Oracle and SmartStation.
PerformanceWorks 3.0 for UNIX and Windows NT environments advances the Company's
UNIX and NT performance management capabilities and offers a scalable,
integrated end-to-end view of client/server performance management, including
"what if " analyses.
SmartWatch is a product that allows the measurement of application availability
and end-to-end response time on a user's Windows 95/98/NT desktop. Measurement
takes place, regardless of whether the application is developed in-house or
purchased off-the-shelf. The U.S. Patent and Trademark office issued a patent
for Landmark's SmartWatch technology in 1999.
PERFORMANCEWORKS WEBWATCHER. In the fourth quarter of 1999, in response to the
growing demand for management of the entire e-business enterprise, the Company
announced a new e-business initiative. PerformanceWorks WebWatcher manages
end-user experiences, Web servers and databases. WebWatcher is a
customer-centric performance management solution that provides visibility and
control of critical e-business applications. Using patent-pending technology,
WebWatcher monitors the performance of Web-based users and Web servers to give
an integrated view of Web application performance.
WebWatcher provides the detailed information required to determine the general
health of Web-based applications. What makes WebWatcher unique is that it
monitors end-user performance, not the performance of synthetic transactions
(which can place an undue burden on Web sites and skew results). WebWatcher
collects data about the performance of standard and user-defined transactions
including times for Web pages to load, where users go and response times for
specific transactions.
REAL TIME DEFRAG. In June of 1999 the Company announced a marketing partnership
with INTERCHIP Unternehmensberatung GmbH in which the Company licensed and
resells INTERCHIP's Real-Time Defrag (RTD) product through many of its worldwide
sales channels. RTD allows IT managers to optimize system disk space 24
hours-a-day without affecting production applications and online operations. RTD
maximizes disk space automatically and continuously, requiring no human
intervention, while preventing system and application downtime, rendering faster
data processing, and assuring the best system conditions for accessing files.
CUSTOMERS AND SERVICES
The Company's customers consist of organizations across a wide variety of
industries that are developing or have deployed business-critical applications
in complex, multi-user environments.
Landmark offers its customers a maintenance and support program which provides
telephone consultation, product maintenance and product upgrades. Customers can
communicate with Landmark technical support representatives 24 hours-per-day, 7
days-per-week. In addition, Landmark provides its customers and distributors
access to on-line maintenance information through an Internet-based application.
Landmark's maintenance and support program entitles participants to product
enhancements, support for new releases and upgrades as well as maintenance
information. Historically, 85 to 90% of Landmark's customers have renewed their
maintenance and support arrangements with the Company.
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Landmark's Professional Services organization offers consulting services to
users of its products. These consulting services are designed to support the
effective deployment and implementation of Landmark's products by assisting in
the location of appropriate components on which to run Landmark's software,
identifying which performance metrics to monitor, establishing rules concerning
how to aggregate, retain and store data, and customizing the presentation of
reports generated from the collected information. The demand for these
consulting services has grown as business-critical applications are increasingly
deployed in complex, heterogeneous computing environments. The Professional
Services organization offers a variety of training programs to assist customers
in implementing Landmark's performance management tools, including a number of
standard programs and custom presentations to fulfill specific requests.
Training courses are held at Landmark's Reston, Virginia training center as well
as on-site at customers' facilities.
SALES AND MARKETING
Landmark markets its products and services through its North American and
international sales organizations. The North American direct sales force, which
covers the United States and Canada, consists of field sales representatives,
mainframe and client/server system engineers and telesales personnel.
Additionally, a telesales force increases the productivity of the field sales
representatives by undertaking a variety of support activities. These include
generating and following up on leads, handling and closing smaller transactions,
maintaining a current database of existing and potential customers and providing
general assistance and account management. Each telesales representative
supports the efforts of two direct sales representatives. The Company believes
that the telesales force permits the field sales force to focus on account
opportunities with major businesses involving larger dollar transactions, and on
establishing and maintaining relationships with these organizations.
Landmark has historically relied primarily on third-party distributors to market
and sell the Company's products internationally. In 1999, the Company further
expanded its international operations by reaquiring exclusive distribution for
its products through the creation of several new wholly-owned subsidiaries.
Landmark Systems France, SARL now serves France and French-speaking Switzerland
while Landmark Systems Nordic AB serves the Nordic region. Revenues from
international sales accounted for 31.6%, 33.1% and 33.6% of total revenues in
1999, 1998 and 1997, respectively. Of those amounts, 9.5%, 13.4% and 18.0%,
respectively, were attributable to third-party distributors. Landmark has
established subsidiaries in certain strategic markets to increase sales levels
and gross margins on products sold in such markets. To date, Landmark's
international direct sales efforts consist of eleven sales offices located in
suburbs of Paris, Stockholm, London, Dusseldorf and Utrecht (Netherlands), and
in Rugby (United Kingdom), Madrid, Bornem (Belgium), Melbourne, Sydney and Hong
Kong. For additional information regarding the Company's revenues and long-lived
assets by geographic region, see Note 7 - Segment Information in the Company's
Notes to Consolidated Financial Statements contained elsewhere in this Form
10-K.
The Company also maintains relationships with leading vendors including
Hewlett-Packard, IBM, Microsoft, Oracle, Sun, Sybase and Tivoli. These
relationships afford the Company opportunities to participate in joint marketing
programs with the vendors such as sales seminars, trade shows and other
promotional activities.
Revenues received from individual customers of the Company vary significantly
based on the size of the product installation. The sales cycle for Landmark's
products is lengthy and unpredictable and may range from a few months to over a
year, depending upon the interest of the prospective customer in the Company's
products, the size of the order (which may involve a significant commitment of
capital by the customer), the decision-making and acceptance procedures within
the customer's organization and other factors.
PRODUCT DEVELOPMENT
Since its inception in 1983, Landmark has made substantial investments in
performance management software development. The Company has recently gone
through a transformation to focus on the e-commerce area. In 1999, 1998 and
1997, Landmark's product development expenditures, including amounts
capitalized, totaled
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$17.0 million, $15.5 million and $13.5 million, respectively. The Company
anticipates that, in the future, it will continue to commit substantial
resources to research and development. Landmark maintains mainframe, UNIX and
Windows NT development labs, which it uses to develop, enhance and test its
products. In addition, Landmark made significant investments in 1999 to enter
the e-commerce market. This effort produced a key product, Web Watcher, based on
patent-pending technology, that allows website management of performance from
the client side as well as the server side for key e-business applications.
Landmark believes that its future success will depend in large part on its
ability to rapidly introduce new products in the e-commerce area, in addition to
extending its product line to support additional hardware and software
platforms, respond to changing customer requirements and develop and introduce
in a timely manner new products that keep pace with technological developments
and emerging industry standards.
As of December 31, 1999, the Company had 102 employees engaged in product
development. Landmark intends to increase the size and depth of its product
development operation. However, competition for highly qualified technical
employees is intense and there can be no assurance that the Company will be
successful in recruiting or retaining product development employees.
INTELLECTUAL PROPERTY
Landmark and its subsidiaries rely on a combination of copyright, trademark,
patent and trade secret laws, confidentiality procedures and licensing
arrangements to establish and protect its proprietary rights. To effectively
protect Landmark's intellectual property while allowing for the distribution of
its products in the most flexible and efficient manner, Landmark formed a new
subsidiary in February 1999, Landmark Technology Holdings Corporation. This
Delaware corporation holds, manages, protects and defends the intellectual
properties of Landmark. Additionally, the Delaware corporation licenses
to Landmark and/or present and future affiliates and/or third parties the use
of such properties.
As part of its confidentiality procedures, Landmark and its subsidiaries
generally enter into non-disclosure agreements with its employees, distributors
and corporate partners, and license agreements with its customers, distributors
and corporate partners with respect to its software, product documentation and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. Policing unauthorized use of the Company's products is difficult,
and Landmark is unable to determine the extent to which piracy of its software
products and misappropriations of its technology occur. Software piracy and
misappropriation may adversely affect the Company's results of operations.
Landmark and its subsidiaries currently rely on signed license agreements, but
may in the future rely on "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, effective protection of intellectual property rights
is unavailable or limited in certain foreign countries. There can be no
assurance that the Company's protection of its proprietary rights, including any
patent that may be issued, will be adequate or that the Company's competitors
will not independently develop similar technology, duplicate the Company's
products or design around any patents issued to the Company or other
intellectual property rights.
Landmark and its subsidiaries are not aware that any of its products infringe
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not claim such infringement by the Company with respect
to current or future products. The Company expects that software product
developers will increasingly be subject to such claims as the number of products
and competitors in the Company's industry segment grows and the functionality of
products in the industry segment overlaps. Any such claims, with or without
merit, could result in costly litigation that could absorb significant
management time, which could have a material adverse effect on Landmark's
business, financial condition and results of operations. Such claims might
require the Company to enter into royalty or license agreements. Such royalty or
license agreements, if required, may not be available on terms acceptable to
Landmark or at all, which could have a material adverse effect upon the
Company's business, financial condition and results of operations.
COMPETITION
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The market for performance management software is intensely competitive,
fragmented and characterized by increasingly rapid technological developments,
evolving standards and rapid changes in customer requirements. To maintain and
improve its position in this market, Landmark is enhancing current products and
the inter-operability of its products with one another and developing new
products. Landmark competes primarily with vendors that provide mainframe and/or
client/server performance management software. The Company believes that
principal competitors with respect to mainframe performance management software
products include Candle Corporation and BMC Software, Inc. In the client/server
market, Landmark believes that its principal competitors include BMC Software,
Inc., Compuware Corporation and Computer Associates International, Inc.
Some of the Company's competitors have longer operating histories and
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
those of the Company. The Company's current and future competitors could
introduce products with more features, greater scalability, increased
functionality and lower prices than the Company's products. These competitors
could also bundle existing or new products with other, more established products
in order to compete with the Company. The Company's focus on performance
management software may be a disadvantage competing with vendors that offer a
broader range of products. Moreover, as the client/server performance management
software market develops, a number of companies with significantly greater
resources than those of the Company could increase their presence in this market
by acquiring or forming strategic alliances with competitors or business
partners of the Company. In addition, due to potentially lower barriers to entry
for platform-specific niche products in the performance management software
market, the Company believes that emerging companies may enter this market,
particularly in the client/server environment. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any of which could materially and adversely affect the Company's business,
financial condition and results of operations. Any material reduction in the
price of the Company's products would negatively affect gross margins and would
require the Company to increase software unit sales in order to maintain gross
profits. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, financial
condition and results of operation.
The principal competitive factors affecting the market for Landmark's products
are functionality and features (including breadth of data collection, data
management, integration and modeling), product quality, platform coverage,
product architecture, price, customer support and name recognition. Based on
these factors, the Company believes that it has competed effectively to date. In
the future, Landmark will be required to respond promptly and effectively to the
challenges of technological change, its competitors' innovations and customer
requirements. There can be no assurance that Landmark will be able to provide
products that compare favorably with the products of the Company's competitors
or that competitive pressures will not require the Company to reduce its prices.
EMPLOYEES
As of December 31, 1999, the Company employed 308 full time personnel, including
102 in product development, 32 in technical support, 121 in sales and marketing,
and 53 in finance and administration. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage. The Company believes its success will depend in
part on its continued ability to attract and retain highly qualified personnel
in an intensely competitive market for experienced and talented software
engineers and sales and marketing personnel. The Company believes that its
relationship with its employees is satisfactory.
ITEM 2. PROPERTIES.
Landmark relocated its corporate headquarters to a facility in Reston, Virginia
in June 1999. Landmark entered into a lease agreement whereby it will lease the
entire 4 story office building, approximately 100,000 square feet situated on a
5 acre development site, for a term of twelve years, with two renewal options
each for an additional five years. Landmark executed a coterminous sublease of
its previous office space in Vienna, Virginia, which
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<PAGE> 12
took effect upon the commencement of the new lease, under a lease expiring in
June 2003, with a renewal option for an additional five years.
The Company also leases approximately 4,000 square feet of office space in
Oakbrook, Illinois under a lease expiring in April 2002, and 2,000 square feet
in Irvine, California under a lease expiring in April 2002. Landmark leases
office space in London and Rugby, UK; Nieuwegein, the Netherlands;
Sevres Cedex, France; Kaarst, Germany; Central Hong Kong; Bagvaerd, Denmark;
Helsinki, Finland; Jarfalla, Sweden; Melbourne and Sydney, Australia; and
Madrid, Spain.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently engaged in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
There were no matters submitted to stockholders for vote during the fourth
quarter of 1999.
EXECUTIVE OFFICERS OF THE COMPANY
The following table lists the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Katherine K. Clark 42 President, Chief Executive Officer and Director
James R. Bowerman 44 Vice President, Research and Development
Daniel C. Carayiannis 43 Vice President, Worldwide Sales
John D. Hunter 53 Vice President, Business Development
Robert H. Johnson 58 Vice President, Customer Operations
Bruce E. Lovett 42 Vice President, Marketing
Frederick S. Rolandi, III 48 Secretary, Vice President and Chief Financial Officer
</TABLE>
KATHERINE K. CLARK, a co-founder of Landmark, has beaded product development,
technical support, finance and human resources at various times over Landmarks
history, has been a director of Landmark since 1983 and from November 1993 to
September 1997 was President of the Company. In 1994, Ms. Clark assumed her
current role as Chief Executive Officer of the Company and is responsible for
the long-term strategic direction of the Company. In November 1999, Ms. Clark
reassumed the role of President of the Company.
JAMES R. BOWERMAN is Landmark's Vice President, Research and Development and is
responsible for strategy, development maintenance and planning for Landmark's
product lines. Mr. Bowerman joined Landmark in March 2000 after eight years as
the Vice President of Engineering of AXENT Technologies.
DANIEL C. CARAYIANNIS is Landmark's Vice President, Worldwide Sales and is
responsible for sales and sales support throughout the world. Mr. Carayiannis
was Landmark's Vice President, North American Sales from October 1998 until
January 2000. Prior to joining Landmark, Mr. Carayiannis served from July 1994
to October 3998 as Vice President of SPOT Image Corporation, a satellite
imagery and information data products firm. From
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<PAGE> 13
April 1993 to July 1994, Mr. Carayiannis served as Vice President of Sales for
Falcon Microsystems, a federal, computer technology value-added reseller.
JOHN D. HUNTER is Landmark's Vice President, Business Development and is
responsible for identifying and evaluation of strategic business opportunities.
Prior to his appointment to this position in January 2000, Mr. Hunter served as
Landmark's Vice President, Mainframe Products, since June 1994. Mr. Hunter
joined Landmark in August 1992 as Vice President, Development and Technology
after 24 years with IBM, during which time he held management roles in various
IBM development labs and was responsible for IBM's worldwide standards
participation as director of architecture and telecommunications.
ROBERT H. JOHNSON is Landmark's Vice President Customer Operations and is
responsible for customer service, quality assurance, product packaging and
documentation at Landmark. Prior to his appointment to this position in January
2000, Mr. Johnson served as a director of technical communications since he
joined Landmark in 1990.
BRUCE E. LOVETT is Landmark's Vice President, Marketing and is responsible for
the strategic planning and implementation of Landmark's marketing programs for
all software product lines. Prior to joining Landmark in May 1999, Mr. Lovett
served as Vice President, Worldwide Marketing at TenFour, a company that
specializes in e-mail and Web security and connectivity software and services
from 1998 to 1999. From 1996 to 1998, Mr. Lovett was employed with Versatility,
a provider of call center and customer care software and services, where he
served as Vice President of Marketing and Customer Programs. Mr. Lovett served
as the Director of Marketing for GRCI, a network design software and consulting
services firm during 1996, and he served as the Marketing Programs Manager for
LEGENT from 1993 to 1995.
FREDERICK S. ROLANDI, III has served as Landmark's Vice President and Chief
Financial Officer since November 1998. In September 1999, Mr. Rolandi was
elected to serve as Secretary of the Company. Prior to his employment with
Landmark, Mr. Rolandi served as Vice President, Controller of Intersolv, Inc.,
a software tools company, from November 1997 to October 1998. From 1991 to
October 1997 Mr. Rolandi was employed with Honeywell Measurex DMC where he
served as Vice President and Chief Financial Officer from May 1991 to December
1995 and as Vice President and General Manager from January 1996 to October
1997.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Landmark's common stock (the "Common Stock") has been traded on the Nasdaq
National Market since the Company's initial public offering on November 18, 1997
under the symbol "LDMK." The following table sets forth the high and low sale
price, as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
Fourth Quarter $11.188 $3.50
Third Quarter 11.25 6.75
Second Quarter 13.25 8.75
First Quarter 14.25 8.50
1998
Fourth Quarter $12.25 $6.00
Third Quarter 10.75 7.375
Second Quarter 9.75 6.375
First Quarter 10.25 8.00
1997
Fourth Quarter (from November 18, 1997) $9.125 $7.00
</TABLE>
On March 3, 2000, there were 178 holders of record of the Company's Common
Stock.
Landmark has never paid or declared any cash dividends and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. The Company
currently intends to retain its future earnings, if any, to fund the development
and finance the growth of its business. The amount and timing of any future
dividends will depend on general business conditions encountered by the Company,
as well as the financial condition, earnings and capital requirements of the
Company and such other factors as the Board may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of the Company are qualified by reference
to and should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and Management's Discussion and Analysis of Results of
Operations and Financial Condition included elsewhere in this Form 10-K. The
consolidated statements of operations data for the years ended December 31,
1997, 1998 and 1999, and the consolidated balance sheet data at December 31,
1998 and 1999 were derived, and are qualified by reference to, Consolidated
Financial Statements of the Company which were audited by PricewaterhouseCoopers
LLP and are included elsewhere in this Form 10-K. The consolidated statements of
operations data for the years ended December 31, 1995 and 1996 and the
consolidated balance sheet data at December 31, 1995, 1996 and 1997 are derived
from the Company's audited financial statements not included in this Form 10-K.
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<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Total revenues $34,460 $36,556 $43,362 $49,832 $55,202
Gross profit 26,797 27,643 37,478 44,359 47,306
Operating expenses
Sales and marketing 13,092 11,671 14,310 17,125 20,881
Product research and development 12,490 13,924 13,478 15,247 16,129
General and administrative 6,872 4,776 5,258 5,561 5,995
------- ----- ----- ----- -----
Total operating expenses 32,454 30,371 33,046 37,933 43,005
------ ------ ------ ------ ------
Operating (loss) income (5,657) (2,728) 4,432 6,426 4,301
Net (loss) income $(4,169) $(1,202) $3,006 $5,122 $4,077
(Loss) earnings per share (1)
Basic $(0.65) $(0.18) $0.19 $0.45 $0.33
Diluted $(0.65) $(0.18) $0.17 $0.41 $0.31
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents $316 $339 $17,243 $28,322 $32,136
Working capital (deficit) (5,985) (4,138) 11,218 24,198 29,246
Total assets 31,479 25,076 44,508 59,307 76,507
Deferred revenue 18,548 18,705 20,392 26,625 33,396
Long-term debt (less current portion) 1,084 592 51 - -
Redeemable common stock instruments 1,049 704 - - -
Mandatorily redeemable preferred stock 5,865 5,865 - - -
Stockholders' equity (deficit) (4,915) (6,290) 18,378 26,829 37,942
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute basic and
diluted earnings per share.
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<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS FOR 1999, 1998 AND 1997
The following table sets forth the Company's Consolidated Statements of
Operations expressed as percentages of total revenues for the periods indicated.
The Company's revenues are derived from licensing mainframe and client/server
computer software, and providing related maintenance and other services.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues
License revenues 45.9% 44.3% 38.7%
Maintenance revenues 54.1 55.7 61.3
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Cost of revenues
Cost of license revenues 2.4 2.3 4.6
Cost of maintenance revenues 8.3 7.4 7.6
Cost to acquire distribution rights 3.6 1.3 1.4
--- --- ---
Total cost of revenues 14.3 11.0 13.6
----- ------ -----
Gross profit 85.7 89.0 86.4
----- ------ -----
Operating expenses
Sales and marketing 37.8 34.4 33.0
Product research and development 29.2 30.6 31.1
General and administrative 10.9 11.1 12.1
----- ------ -----
Total operating expenses 77.9 76.1 76.2
----- ------ -----
Operating income 7.8 12.9 10.2
Net interest and other income 3.8 3.6 1.1
----- ------ -----
Income before income taxes 11.6 16.5 11.3
Provision for income taxes 4.2 6.2 4.4
----- ------ -----
Net income 7.4% 10.3% 6.9%
==== ==== ====
</TABLE>
Total revenues. Total revenues in 1999 were $55.2 million, an increase of 10.8%
from the prior year. Total revenues in 1998 were $49.8 million, an increase of
14.9% from 1997. Revenues in 1999 from mainframe
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<PAGE> 17
products and services were $45.4 million, an increase of 7.2% from the prior
year, and revenues in 1999 from client/server products and services were $9.8
million, an increase of 30.9% from the prior year. The increase in revenues from
mainframe products and services was primarily due to an increase in customer
conversions as discussed below. The increase in client/server revenues was
primarily due to increased acceptance of the client/server products in
international markets. Although revenues continued to increase, the Company
experienced a slowdown in sales growth due to the lengthening of the sales cycle
(this lengthening of the sales cycle may be attributable to certain Year 2000
issues, as described below, and to the greater time required to consummate more
complex and higher dollar transactions). In an effort to shorten the sales cycle
and improve its order close rate, the Company introduced a more focused direct
sales approach in October 1999. The Company intends to monitor the results of
this sales approach to determine its impact on the sales cycle and order close
rate; however, the lengthening of the sales cycle due to Year 2000 issues may
continue through at least the first quarter of 2000.
License revenues. License revenues in 1999 were $25.3 million, an increase of
14.7% from the prior year. During 1998, license revenues were $22.1 million, an
increase of 31.6% from 1997. The increases in 1999 and 1998 were primarily due
to an increase in the number of new customers, large dollar transactions
(transactions greater than $100,000) and customer conversions to new license
agreements. A conversion of a license agreement is, in effect, a migration from
either a site or CPU license to a MIPS (millions of instructions per second) or
MSU (measured service units) license. A site or CPU license allows the customer
to use the licensed software only in one designated location. A MIPS or MSU
license, however, allows the customer to use the licensed software in a
multi-site environment (these licenses are often selected by customers who can
reasonably anticipate their computing capacity needs, and this license is priced
in proportion to the computing capacity of the machine). If a customer elects to
convert to a MIPS or MSU license, the customer is required to pay the Company an
additional fee whenever the customer increases the size of their computing
environment. The list price of the new license and the associated maintenance
may be lower than that of the original license and maintenance because of
changes in fair values over time. During 1999 and 1998, the Company entered into
approximately 60 and 40 license agreements, respectively, which were greater
than $0.1 million.
Maintenance revenues. Maintenance revenues in 1999 were $29.9 million, an
increase of 7.6% from the prior year. During 1998, maintenance revenues were
$27.7 million, an increase of 4.4% from 1997. In 1999 and 1998, maintenance
revenues were favorably impacted by the volume of prior year's license sales and
the effects of increases in the Company's maintenance prices, partially offset
by an increase in conversions of license agreements, which often may result in
lower maintenance fees. As discussed above, due to changes in fair values over
time, the new license and associated maintenance may be lower than that of the
original (pre-conversion) license and maintenance. Maintenance renewal rates
have historically been 85 to 90%, and management believes future maintenance
renewal rates will continue at this level.
Cost of license revenues. Cost of license revenues includes amortization of
capitalized software costs, product royalties and materials and packaging
expenses. Costs of license revenues in 1999, 1998 and 1997 were $1.3 million,
$1.2 million and $2.0 million, respectively, representing 5.2%, 5.2% and 11.7%
of license revenues. The slight increase from 1998 to 1999 is the result of an
increase in product royalties partially offset by a decrease in amortization of
capitalized software costs. The $0.8 million reduction from 1997 to 1998 is
primarily due to a decrease in amortization of capitalized software costs.
Cost of maintenance revenues. Cost of maintenance revenues consists of personnel
and related costs for customer support, training and consulting services. Costs
of maintenance revenues in 1999, 1998 and 1997 were $4.6 million, $3.7 million
and $3.3 million, respectively, representing 15.3%, 13.3% and 12.4% of
maintenance revenues. The $0.9 million increase from 1998 to 1999 is primarily
the result of increased professional service personnel for client/server
products and additional support personnel in the Company's European
subsidiaries. The $0.4 million increase from 1997 to 1998 is primarily due to an
increase in the number of customer service employees.
Cost to acquire distribution rights. Cost to acquire distribution rights
includes royalties paid related to the acquisition of distribution rights as
well as the straight-line amortization of international distribution rights that
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<PAGE> 18
have been reacquired from third party resellers. Cost to acquire distribution
rights in 1999, 1998, and 1997 were $2.0 million, $0.6 million and $0.6 million,
respectively. The increase in 1999 is primarily due to the amortization of
distribution rights acquired in January and October 1999 from the Company's
former distributors in the United Kingdom and France, respectively, and
royalties of $0.2 million paid to the Company's former distributor in the Nordic
region.
Sales and marketing. Sales and marketing expenses include personnel and related
costs for the Company's direct sales organization, marketing staff and
promotional expenses. Sales and marketing expenses were $20.9 million, $17.1
million and $14.3 million in 1999, 1998 and 1997, respectively, representing
37.8%, 34.4% and 33.0% of total revenues. The $3.8 million increase from 1998 to
1999 is primarily due to an increase in personnel in the international direct
sales organization, the increase in marketing activities, and an increase in
commission expenses to the Company's direct sales forces as a result of
increased sales. The $2.8 million increase from 1997 to 1998 is primarily due to
growth of the North American direct sale force and an increase in marketing
personnel and programs.
Product research and development. Product research and development expenses
include personnel and related costs for the Company's development staff. Product
research and development expenses were $16.1 million, $15.2 million and $13.5
million in 1999, 1998 and 1997, respectively, representing 29.2%, 30.6% and
31.1% of total revenues. The $1.7 million increase from 1997 to 1998 is due to
the Company's continued investment in both mainframe and client/server products.
The Company capitalized software development costs of $0.9 million and $0.3
million in 1999 and 1998, respectively, and did not capitalize any software
development costs in 1997 as any amounts eligible for capitalization were not
material. Amounts capitalized in 1999 were related to the development of
WebWatcher which is scheduled to be released in the second quarter of 2000;
amounts capitalized in 1998 were related to the development of PerformanceWorks
3.0.
General and administrative. General and administrative expenses include salaries
and related costs of administration, finance and management personnel, as well
as legal and accounting fees. General and administrative expenses were $6.0
million, $5.6 million and $5.3 million in 1999, 1998 and 1997, respectively,
representing 10.9%, 11.1% and 12.1% of total revenues. The increase from 1998 to
1999 is due to a continued increase in personnel in the Company's information
systems department and costs associated with the relocation of the Company's
headquarters which occurred in June 1999. The increase from 1997 to 1998
includes increased expenses for information systems personnel and bad debt
reserves, partially offset by a decrease in stock compensation expense. Bad debt
reserves are calculated based on historical experience of bad debt write-offs,
aging of receivables, and specific exposures. During 1998, two of the Company's
international distributors, with receivables totaling $0.5 million, became
significantly delinquent in their payments. Accordingly, the Company increased
its reserves to cover these specific exposures. During 1999, one of the
international distributors paid its delinquent balance, at which time the
reserve was adjusted. The Company wrote off the entire receivable balance from
the second delinquent international distributor and reduced the reserve
accordingly.
Net interest and other income. Net interest and other income includes interest
income earned on cash balances, interest income recorded on installment
receivables, interest expense incurred on term and revolving credit facilities,
bank fees and exchange gains (losses) incurred by the Company on transactions
denominated in foreign currencies. Net interest and other income were $2.1
million, $1.8 million and $0.5 million for 1999, 1998 and 1997, respectively. Of
these amounts, $1.2 million, $0.9 million and $0.2 million represent interest
earned on the Company's bank balances in 1999, 1998 and 1997, respectively. The
increases from 1998 to
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<PAGE> 19
1999 and from 1997 to 1998 reflect higher levels of interest income earned by
the Company on its cash balances and the reduction of interest expense due to
the repayment of the Company's debt obligations during 1998.
Provision for income taxes. The Company's effective rates were 36.3%, 37.7% and
39.1% for 1999, 1998 and 1997, respectively. The effective tax rates differ from
the federal and state statutory income tax rate primarily as a result of the
adjustments of valuation allowances to reflect management's judgment as to
whether certain tax credit carryforwards would expire before utilization by the
Company, and as to the relative likelihood that foreign subsidiary net operating
losses would not be recovered. In 1999, the Company reduced its valuation
allowance by $0.1 million primarily due to the release of its liability for
competent authority. See Note 8 to the Consolidated Financial Statements-Income
Taxes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents of $32.1
million, an increase of 13.5% from the prior year, and working capital of $29.2
million. During 1999, net cash provided by operating and financing activities
was $9.6 million and $3.8 million, respectively, while net cash used in
investing activities was $9.6 million. The Company invests its cash in a money
market fund. The Company had no debt as of December 31, 1999, other than normal
trade payables and accrued liabilities. Stockholders' equity at December 31,
1999 was $37.9 million.
The Company continues to finance its growth through funds generated from
operations. During 1999, 1998 and 1997, cash flow from operations was $9.6
million, $12.3 million and $6.6 million, respectively. Net cash flow from
operating activities is primarily composed of net income, depreciation and
amortization, the sale of unbilled receivables, and increases in deferred
revenue, partially offset by increases in accounts receivable and unbilled
accounts receivable, and a decrease in income taxes payable. During 1999 and
1998, the Company augmented operating cash flows with the sale of $8.8 million
and $7.8 million, respectively, of unbilled accounts receivable. The sale of the
unbilled receivables resulted in immaterial gains and losses for the Company. In
the future, the Company may sell additional unbilled accounts receivable from
time to time depending on the Company's cash flow requirements and whether the
terms are financially favorable for the Company.
The Company's investing activities include expenditures for fixed assets in
support of the Company's product development activities and infrastructure, and
for capitalized software development costs. During 1999, 1998 and 1997, the
Company invested $2.9 million, $2.3 million and $1.6 million, respectively, in
fixed assets, consisting primarily of computer equipment to expand and upgrade
the Company's development activities and, in 1999, for leasehold improvements
associated with the Company's new headquarters. The Company expects to upgrade,
on an ongoing basis, its development environments to meet changing customer and
market requirements. In 1999, the Company also entered into operating leases
with an aggregate value of $2.1 million to partially finance its move to its new
headquarters. In 2000, the Company expects to make additional investments in its
IT infrastructure of approximately $2.0 million.
The Company's investing activities also include amounts recorded as capitalized
software development costs. Of the total research and development expenditures
of $17.0 million, $15.5 million and $13.5 million during 1999, 1998 and 1997,
the Company capitalized costs of $0.9 million and $0.3 million in 1999 and 1998,
respectively. The Company did not capitalize any software development costs in
1997 as any amounts eligible for capitalization were not material.
During 1999, the Company acquired distribution rights from its former
international distributors in the United Kingdom and France. As partial
consideration for these acquisitions, the Company paid the former distributor in
the United Kingdom $4.0 million in cash and paid the former distributor in
France $1.2 million in cash. For additional discussion of the Company's
acquisition of distribution rights, see Note 2 to the Consolidated Financial
Statements - Summary of Significant Accounting Policies, Intangible Assets.
The Company believes that cash and cash equivalents at December 31, 1999 and
cash flow generated from operations will provide sufficient liquidity to meet
its needs for at least the next twelve months. To the extent the
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<PAGE> 20
Company makes acquisitions of other companies, products or technologies, the
Company may use working capital, sell or issue additional equity or debt
securities or use credit facilities.
INTRODUCTION OF THE EURO CURRENCY
The Euro became the single currency for most European countries on January 1,
1999, and the transition from national currencies to the Euro will be phased in
over several years. The Company has assessed Euro issues related to its treasury
operations, product pricing, contracts and accounting systems. Although the
evaluation of these issues is still in process, management continues to believe
that the Company's existing or planned hardware and software systems will
accommodate the transition to the Euro and any required operating changes will
not have a material effect on future results of operations or financial
condition.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position (SOP) 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9
modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions are met. The Company adopted SOP 98-9 on January
1, 2000 and believes the adoption will not have a material effect on the
Company's financial condition or results of operations.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The Company adopted SOP 98-1
on January 1, 1999. The adoption of SOP 98-1 did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." The Company is required to adopt SFAS
133 for all fiscal quarters of all fiscal years beginning after June 15, 2000.
SFAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities. Because the Company currently holds no derivative
financial instruments as defined by SFAS 133 and does not currently engage in
hedging activities, adoption of SFAS 133 is expected to have no material effect
on the Company's financial condition and results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101") to
provide guidance regarding the recognition, presentation and disclosure of
revenue in financial statements. The Company is currently evaluating the impact
of the provisions of SAB 101.
YEAR 2000 COMPLIANCE
Through the first two months of 2000, Landmark's operations are fully
functioning with no material Year 2000 issues to report anywhere in the world.
At Landmark corporate headquarters and at its subsidiary sites worldwide there
have not been any significant Year 2000-related issue that would affect the
Company's ability to manufacture, ship, sell or service its products.
In preparation for the Year 2000 date rollover, the Company conducted periodic
evaluations of its computer systems and products in an effort to determine the
actions, if any, necessary to make them Year 2000 compliant. The term "Year 2000
compliant" (or similar terms) generally means that information technology
hardware and software are able to correctly interpret and manipulate dates up to
and through the year 2000, without interruption as the result of the change to
this date.
These evaluations involved both testing the Company's computer systems and
either requesting certifications from its vendors or consulting vendor websites.
The Company completed testing and received vendor certification of all of its
business critical information technology systems, including internal
communication systems, accounting and finance systems, customer service systems
and sales and marketing tracking systems, and does not anticipate
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<PAGE> 21
any Year 2000 compliance issues with these systems. At the conclusion of testing
these systems, the Company determined that all critical information technology
systems are Year 2000 compliant. The Company upgraded, replaced and tested these
applications, and this process was completed prior to the Year 2000 date
rollover.
The Company also recognized that there are risks with respect to embedded
systems that are not necessarily a part of the Company's information technology
systems but contain microprocessor chips, which may not function properly with
the change of date to the year 2000. The majority of the embedded systems on
which the Company relies in its day-to-day operations are owned and managed by
the lessors of the buildings in which the Company's offices are located, or by
agents of such lessors. During the second quarter of 1999, the Company moved its
headquarters to a new facility, containing new mechanical systems, in Reston,
Virginia. The Company believed that the new mechanical systems will be Year 2000
compliant, based on its building construction manager's experience with other
such systems, and certain representations made by the manufacturers of such
systems. The Company received assurance, through the representations in the
equipment manufacturers' Operation and Maintenance (O & M) manuals or written
letters of certification, that these systems are Year 2000 compliant.
Additionally, the Company installed a new telephone switch in the new facility,
and a Year 2000 compliancy certificate has been received from the switch's
manufacturer.
Because the Company believed that its information technology and embedded
systems would be substantially Year 2000 compliant in advance of the year 2000
date change, the Company had no contingency plan to address non-compliance. The
Company, however, constantly monitors its Year 2000 status and is prepared to
develop contingency plans if it is determined that any business critical systems
may not be Year 2000 compliant.
Disruptions with respect to the computer systems of vendors or customers, which
are outside the control of the Company, could impair the ability of the Company
to obtain services from or conduct business with its customers. The Company
believes that its primary exposure is with respect to public utilities and
telecommunications service providers. The Company completed the process of
either consulting vendor websites or requesting certifications from these public
utilities and telecommunications service providers of their Year 2000
compliance. Although the public utility companies and telecommunications service
providers consulted have determined to the best of their knowledge and belief
that interruptions to services will be unlikely, unforeseen disruptions of the
Company's utilities or telecommunications systems could have a material adverse
effect upon the Company's financial condition and results of operations. The
Company believes that no other providers are material to its business.
Disruptions of customers' computer systems could interfere with payments to the
Company by such customers, and therefore with the Company's ability to make
timely payments on its accounts, and could otherwise cause disruptions to the
Company's operations. None of the Company's customers, however, is individually
material to the Company's business and the Company did not seek certifications
from its customers that their internal computer systems are Year 2000 compliant.
With respect to the products sold by the Company, the Company had determined
that, with certain exceptions described below, to the extent that underlying
hardware platforms, operating systems applications and databases will
accommodate the year 2000 date change, the Company's performance management
software products are Year 2000 compliant. The Company is specifically aware
that CICS Version 2, Release 1.2, an operating system developed and marketed by
the IBM Corporation is not presently Year 2000 compliant, according to IBM, and
that the Company's The Monitor for CICS/MVS Version 8.3 product, since it
operates with such non-compliant IBM product, is therefore also non-compliant.
IBM has decided not to make their product compliant. Accordingly, the Company
has been communicating this non-compliancy situation to its customers by
written, oral and electronic (e-mail and the Company's web site) communications
since 1997. The expected reduced sales of this product are not expected to have
a material adverse effect on the Company's results of operations or financial
condition.
The other exceptions to the Company's general condition of Year 2000 product
compliance are: (1) some Company product customers may be operating older,
non-compliant versions of certain of the Company's products, and also may not be
active participants in product maintenance programs that periodically provide in
the normal course of business (at no additional charge beyond the on-going costs
of program participation) newer product versions or product modifications that
address Year 2000 non-compliancy issues and specifically make
-21-
<PAGE> 22
such products Year 2000 compliant (the "Older Product Scenario"); (2) the
Company discovered in the first quarter of 1999 that its NaviGraph product,
version 1.3 required a product addition to make it Year 2000 compliant (the
"NaviGraph 1.3 Scenario"); (3) the Company discovered in the second quarter of
1999 that its SmartAgent for Oracle product required a product addition to make
it Year 2000 compliant (the "SmartAgent for Oracle Scenario"); and (4) the
Company discovered in third quarter of 1999 that two products, Navigraph version
2.0 (the "Navigraph 2.0 Scenario") and the Monitor for VTAM version 2.1 (the
"Monitor for VTAM 2.1 Scenario") have Year 2000 data reporting and display
defects which do not affect the overall operation of the product.
With respect to the Older Product Scenario, the majority (on an absolute basis)
of the Company's products were made Year 2000 compliant during 1997. Certain
other Company products, specifically The Monitor for DB Control, The Monitor for
MQ Series and NaviPlex products, were made Year 2000 compliant during 1998.
Additionally, those customers on active product maintenance programs (and
approximately 85% to 90% of the Company's customers participate in such
programs) receive regular product upgrades or modifications that include
software that addresses Year 2000 compliancy issues. The Company encourages all
its customers to participate in active maintenance programs. The Company has
completed its attempts to communicate this Older Product Scenario issue to
customers through written, oral and electronic (e-mail and the Company's web
site) communications.
With respect to the NaviGraph 1.3 Scenario, the product addition required to
make this product Year 2000 compliant was made generally available to all
NaviGraph customers participating in active maintenance programs during late
April 1999. The Company had previously communicated to its customers and to
third parties, beginning in 1997, that NaviGraph 1.3 was Year 2000 compliant.
The Company has completed its efforts to contact all NaviGraph 1.3 product
customers to alert them that Year 2000 compliancy issues may be present and to
inform them of their options.
With respect to the SmartAgent for Oracle Scenario, the product addition
required to make this product Year 2000 compliant was made generally available
to all SmartAgent for Oracle customers participating in active maintenance
programs during early August 1999. The Company had previously communicated to
its customers and to third parties, beginning in 1997, that SmartAgent for
Oracle was Year 2000 compliant. Year 2000 product additions have been made
available for all versions (1.x, 2.x, and 3.0) of SmartAgent for Oracle.
SmartAgent for Oracle 3.0 becomes Year 2000 compliant when used in conjunction
with Service Pack 2, which was made available in early August 1999. Year 2000
product additions (replacement binaries) for all previous versions (1.x, 2.x)
have been made available to SmartAgent for Oracle customers that are on, or wish
to join, active maintenance programs. The Company has completed its efforts to
contact all SmartAgent for Oracle product customers to alert them that Year 2000
compliancy issues may be present and to inform them of their options.
With respect to the NaviGraph 2.0 Scenario, the product addition required to
correct the reporting and display function defect and make this product fully
Year 2000 compliant was made generally available to all NaviGraph customers
participating in active maintenance programs through the November 1999
PerformanceWorks for MVS and OS/390 version 3 Cumulative Service tape in
November 1999. The Company had communicated to its customers and to third
parties through the second quarter of 1999 that NaviGraph 2.0 was Year 2000
compliant. All NaviGraph version 2.0 domestic customers participate in the
maintenance program for the product. Approximately three-quarters of
international NaviGraph customers (version 2.0 and previous versions)
participate in the maintenance program for the products. The Company does not
know how many of those international NaviGraph product customers not
participating in an active maintenance program are no longer using the product.
Accordingly, the majority of domestic and international NaviGraph 2.0 customers
who have elected to participate in active maintenance programs are, or will be
made, Year 2000 compliant with respect to such products in the normal course of
business, assuming they accept and implement the November Cumulative Service
tape as such normal product maintenance. The Company has completed its efforts
to contact all NaviGraph 2.0 product customers to alert them that Year 2000
compliancy issues may be present and to inform them of their options.
With respect to the Monitor for VTAM 2.1 Scenario, the product addition required
to make this product Year
-22-
<PAGE> 23
2000 compliant was made generally available to all Monitor for VTAM customers
participating in active maintenance programs during November 1999. The Company
had previously communicated to its customers and to third parties that the
Monitor for VTAM version 2.1 was Year 2000 compliant. Of the approximately 149
domestic Monitor for VTAM 2.1 customers, 117 of such customers participate in
the maintenance program for the product. The Company does not know how many of
those domestic Monitor for VTAM customers not participating in an active
maintenance program are no longer using the product. Of the approximately 102
international Monitor for VTAM (version 2.1 and previous versions) customers,
approximately 74 of such customers participate in the maintenance program for
the products. The Company does not know how many of those international Monitor
for VTAM (version 2.1 and previous versions) customers not participating in an
active maintenance program are no longer using the product. Accordingly, the
majority of domestic and international Monitor for VTAM (version 2.1) customers
who have elected to participate in active maintenance programs are, or will be
made, Year 2000 compliant with respect to such products, assuming they accept
and implement the fix. The Company has completed is efforts to contact all
Monitor for VTAM product customers to alert them that Year 2000 compliancy
issues may be present and to inform them of their options.
Although the Company did not anticipate that customers would require additional
product support during the Year 2000 date change, Landmark had expanded support
supplemented by additional on-site staffing to assist customers on product
maintenance with either Year 2000- or non-Year 2000 related-problems from
Thursday, December 30, 1999 through Friday January 7, 2000. The number of Year
2000-related calls from customers into the Company's product support center has
been much lower than anticipated. Customer support operations continue to report
that customers have no significant Year 2000 incidents.
Notwithstanding its efforts to attempt to ensure that its products are Year 2000
compliant and although the Company to date has not experienced any significant
problems associated with Year 2000, the Company may experience future
uncertainties and problems relating to the Year 2000 date change issue,
including but not limited to possible technical problems and/or customer claims.
If circumstances warrant, the Company may conduct additional tests for its
mainframe and client/server products, and is also aware that certain of its
customers have been and will continue to conduct additional Year 2000 Company
product compliancy tests. It is possible that additional Company product Year
2000 compliancy issues could be discovered in the future during the course of
such tests.
Virtually all of the Company's customers and potential customers were required
to evaluate their information technology systems with respect to the Year 2000
date change and the Company believes that some of its customers and potential
customers may have incurred material costs in connection with this evaluation
and any necessary repairs and replacements. Customers and potential customers
may have been required to devote material portions of their information
technology budgets to such evaluations, repairs and replacements, which could
have materially reduced their other information technology purchases in 1999,
including their purchases of the Company's products, particularly as the Year
2000 date change drew closer. The Company has very limited information as to the
degree to which its customers or potential customers have completed Year 2000
remediation efforts or whether or not its customers or potential customers are
Year 2000 compliant. However, during the second, third, and fourth quarters of
1999 the Company experienced a lengthening of the sales cycle
-23-
<PAGE> 24
due to, among other things, possible Year 2000 issues. The Company anticipates
that Year 2000 related sales cycle lengthening may continue at least through the
first quarter of 2000.
The Company has incurred a total of approximately $0.5 million for years 1999,
1998, and 1997 for Year 2000 remediation activities. There can be no assurance
that the actions taken by the Company with respect to its internal information
technology systems, embedded systems or its products will eliminate the numerous
and varied risks associated with the year 2000 date change. Further, there can
be no assurance that the Company will not be adversely affected by any year 2000
related difficulties encountered by vendors or customers or by any downturn in
information technology purchases or in the economy in general as a result of the
Year 2000 date change. Additionally, the effects of any actual Year 2000
non-compliance problem directly or indirectly experienced by the Company could
be exacerbated by the fact that the Company normally experiences its largest
quarterly sales for a given calendar year in the fourth quarter of each year,
and invoices and receives payment for such sales in the first quarter of the
following calendar year. Accordingly, should a Year 2000 non-compliance problem
or problems affect the Company's customers, the potential impact on the
Company's operations could be greater than if the Company received these
payments at the time of sale or some time other than the calendar quarter
immediately after the date switch from 1999 to 2000. Any of these risks could
have a material adverse effect on the Company's financial condition and results
of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has subsidiaries in the United Kingdom, Germany, France, The
Netherlands, Sweden, Spain, Australia, Hong Kong and Singapore that act as
distributors of its products. Additionally, the Company uses third party
distributors to market and distribute its products in other international
regions. Transactions conducted by the subsidiaries are typically denominated in
the local country currency, while royalty payments from the distributors are
typically denominated in U.S. dollars. As a result, the Company is primarily
exposed to foreign exchange rate fluctuations as the financial results of its
subsidiaries are translated into U.S. dollars in consolidation. As exchange
rates vary, these results, when translated, may vary from expectations and
impact overall expected profitability. Through and as of December 31, 1999, the
Company's exposure was not material to the overall financial statements taken as
a whole. The Company has not entered into any foreign currency hedging
transactions with respect to its foreign currency market risk.
The Company's exposure to market risk for changes in interest rates relates
primarily to unbilled accounts receivable. At December 31, 1999, the Company has
$12.4 million of unbilled accounts receivable; the estimated fair market value
of these receivables is $12.7 million. If market interest rates increase 10%
from the levels at December 31, 1999, the fair market value of the unbilled
accounts receivable would decline by an immaterial amount.
See Note 2 - Summary of Significant Accounting Policies in the Company's Notes
to Consolidated Financial Statements contained elsewhere in this Form 10-K.
-24-
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Landmark Systems Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Landmark Systems Corporation and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
February 29, 2000
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<PAGE> 26
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues
License revenues $ 25,340,034 $ 22,083,944 $ 16,781,122
Maintenance revenues 29,862,400 27,748,290 26,581,373
----------- ----------- -----------
Total revenues 55,202,434 49,832,234 43,362,495
----------- ----------- -----------
Cost of revenues
Cost of license revenues.. 1,324,108 1,154,828 1,967,265
Cost of maintenance revenues 4,570,971 3,702,575 3,300,851
Cost to acquire distribution rights 2,001,518 615,996 616,000
----------- ----------- -----------
Total cost of revenues 7,896,597 5,473,399 5,884,116
----------- ----------- -----------
Gross profit 47,305,837 44,358,835 37,478,379
----------- ----------- -----------
Operating expenses
Sales and marketing 20,880,796 17,124,823 14,309,460
Product research and development 16,129,310 15,247,055 13,478,173
General and administrative 5,994,432 5,560,788 5,258,230
----------- ----------- -----------
Total operating expenses 43,004,538 37,932,666 33,045,863
----------- ----------- -----------
Operating income 4,301,299 6,426,169 4,432,516
Interest and other income 2,135,516 1,832,310 776,321
Interest expense (41,442) (41,668) (275,741)
----------- ----------- -----------
Income before income taxes 6,395,373 8,216,811 4,933,096
Provision for income taxes 2,318,321 3,094,698 1,927,444
----------- ----------- -----------
Net income 4,077,052 5,122,113 3,005,652
Accretion and dividends on preferred stock - - 1,475,409
----------- ----------- -----------
Net income available to common stockholders $ 4,077,052 $ 5,122,113 $1,530,243
=========== =========== ==========
Earnings per share
Basic $ 0.33 $ 0.45 $ 0.19
Diluted $ 0.31 $ 0.41 $ 0.17
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-26-
<PAGE> 27
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $32,135,952 $28,322,234
Accounts receivable, net of allowance for doubtful
accounts of $795,000 and $1,323,000 13,987,545 10,902,168
Unbilled accounts receivable 5,353,362 5,728,250
Income taxes receivable 2,148,431 -
Deferred income taxes, net 1,333,482 1,644,482
Other current assets 619,283 854,082
---------- ----------
Total current assets 55,578,055 47,451,216
Unbilled accounts receivable - noncurrent 7,063,059 5,486,240
Fixed assets, net 5,363,273 4,121,290
Capitalized software costs, net 866,959 257,722
Deferred income taxes, net - noncurrent 1,493,397 1,094,397
Intangible assets, net 5,854,112 616,000
Other assets 287,900 280,030
----------- -----------
Total assets $76,506,755 $59,306,895
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,775,415 $ 1,042,701
Accrued expenses and other current liabilities 3,026,871 3,566,715
Deferred revenue 21,529,799 17,723,807
Income taxes payable - 920,456
---------- ----------
Total current liabilities 26,332,085 23,253,679
Deferred revenue - noncurrent 11,866,661 8,900,963
Other liabilities 366,115 323,212
---------- -----------
Total liabilities 38,564,861 32,477,854
---------- -----------
Commitments
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares
authorized, 12,838,090 and 11,782,585 issued and
outstanding 128,381 117,826
Additional paid-in capital 34,049,244 26,692,818
Retained earnings (deficit) 3,958,518 (118,534)
Accumulated other comprehensive income (194,249) 136,931
----------- -----------
Total stockholders' equity 37,941,894 26,829,041
----------- -----------
Total liabilities and stockholders' equity $76,506,755 $59,306,895
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-27-
<PAGE> 28
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares
--------------------------------
Accumulated
Additional Retained Other
Paid-in Earnings/ Comprehensive
Issued Par Value Capital (Deficit) Income Total
------------ ----------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 7,331,895 $73,320 $432,300 $(6,770,890) $(24,500) $(6,289,770)
Comprehensive income:
Net income -- -- -- 3,005,652 -- --
Foreign currency translation -- -- -- -- 117,243 --
Total comprehensive income -- -- -- -- -- 3,122,895
Issuance of warrants -- -- 48,000 -- -- 48,000
Series B Preferred Stock issuance
costs -- -- (52,115) -- -- (52,115)
Preferred stock redemption value
adjustment -- -- -- (1,232,579) -- (1,232,579)
Common stock issued upon exercise
of non-qualified stock options 317,177 3,171 1,115,358 -- -- 1,118,529
Tax benefit from exercise of
non-qualified stock options -- -- 265,446 -- -- 265,446
Compensation expense for options
granted to non-employees -- -- 169,268 -- -- 169,268
Common stock repurchased (136,209) (1,362) (871,156) -- -- (872,518)
Waiver of rights to require
repurchase 8,240 82 237,026 -- -- 237,108
Series A Preferred Stock dividends -- -- -- (242,830) -- (242,830)
Issuance of common stock pursuant
to the initial public offering 2,000,000 20,000 13,000,000 -- -- 13,020,000
Initial public offering issuance
costs -- -- (1,000,942) -- -- (1,000,942)
Lapse of rights to require
repurchase 265,650 2,656 1,612,456 -- -- 1,615,112
Conversion of preferred stock
to common stock 1,426,578 14,266 8,458,314 -- -- 8,472,580
---------- ----------- ----------- ---------- --------- -----------
Balance at December 31, 1997 11,213,331 112,133 23,413,955 (5,240,647) 92,743 18,378,184
Comprehensive income:
Net income -- -- -- 5,122,113 -- --
Foreign currency translation -- -- -- -- 44,188 --
Total comprehensive income -- -- -- -- -- 5,166,301
Common stock issued upon exercise
of non-qualified stock options 529,742 5,298 2,099,515 -- -- 2,104,813
Tax benefit from exercise of
non-qualified stock options -- -- 904,852 -- -- 904,852
Issuance of common stock pursuant
to the 1998 SPP 39,512 395 274,496 -- -- 274,891
---------- ----------- ----------- ---------- --------- -----------
Balance at December 31, 1998 11,782,585 117,826 26,692,818 (118,534) 136,931 26,829,041
Comprehensive income:
Net income -- -- -- 4,077,052 -- --
Foreign currency translation -- -- -- -- (331,180) --
Total comprehensive income -- -- -- -- -- 3,745,872
Common stock issued upon exercise
of non-qualified stock options 892,385 8,924 3,255,436 -- -- 3,264,360
Common stock and warrants issued
upon repurchase of distribution
rights 91,586 916 1,722,084 -- -- 1,723,000
Tax benefit from exercise of
non-qualified stock options -- -- 1,833,384 -- -- 1,833,384
Issuance of common stock pursuant
to the 1998 SPP 71,534 715 545,522 -- -- 546,237
---------- --------- ----------- ---------- --------- -----------
Balance at December 31, 1999 12,838,090 $128,381 $34,049,244 $3,958,518 $(194,249) $37,941,894
========== =========== =========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-28-
<PAGE> 29
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $4,077,052 $5,122,113 $3,005,652
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,689,830 2,396,549 3,066,826
Provision for losses on accounts receivable 727,506 603,015 348,882
Stock compensation expense - 99,687 590,917
(Benefit from) provision for deferred income taxes (88,000) (527,861) 269,370
Tax benefit from exercise of stock options 1,833,384 904,852 265,446
Increase in accounts receivable (3,968,056) (1,150,436) (1,156,315)
Change in income taxes receivable/payable (3,068,887) 54,410 610,819
Sale of unbilled accounts receivable 8,772,492 7,820,975 -
Increase in unbilled accounts receivable (9,979,084) (9,591,237) (2,182,813)
Increase (decrease) in accounts payable and accrued
expenses and other current liabilities 673,088 750,326 (192,934)
Increase in deferred revenue 6,642,507 6,232,930 1,377,254
Increase (decrease) in other, net 268,823 (370,450) 574,462
--------- ----------- ---------
Net cash provided by operating activities 9,580,655 12,344,873 6,577,566
--------- ---------- ---------
Cash flows from investing activities:
Acquisition of distribution rights (5,788,418) (488,082) (815,076)
Capital expenditures (2,920,339) (2,252,225) (1,553,874)
Capitalized software costs (856,295) (257,722) -
---------- ----------- ----------
Net cash used in investing activities (9,565,052) (2,998,029) (2,368,950)
--------- ---------- ----------
Cash flows from financing activities:
Principal payments on loans - (591,496) (494,017)
Payments on line of credit - - (1,000,000)
Issuance of common stock in the initial public offering - - 12,019,058
Issuance of common stock pursuant to exercise of
stock options 3,264,360 2,005,126 1,659,745
Issuance of common stock pursuant to employee
stock purchase plans 546,237 274,891 278,791
Repurchases of common stock - - (965,884)
Issuance of Series B Preferred Stock - - 2,447,885
Redemptions of Series A Preferred Stock - - (1,124,999)
Payment of Series A Preferred Stock dividends - - (242,830)
----------- ----------- ----------
Net cash provided by financing activities 3,810,597 1,688,521 12,577,749
--------- ----------- ----------
Effect of exchange rate changes on cash (12,482) 44,188 117,243
----------- ----------- ----------
Net increase in cash and cash equivalents 3,813,718 11,079,553 16,903,608
Cash and cash equivalents, beginning of period 28,322,234 17,242,681 339,073
----------- ----------- ----------
Cash and cash equivalents, end of period $32,135,952 $28,322,234 $17,242,681
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements; see cash flow disclosures including non-cash transactions in Notes
2, 6 and 8.
-29-
<PAGE> 30
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND OPERATIONS
Landmark Systems Corporation (the "Company") was incorporated in the
Commonwealth of Virginia in November 1982 and commenced operations in 1983. The
Company is engaged in the development, marketing and distribution of computer
software products and the provision of related services. The Company is a
supplier of performance management software products which measure, analyze,
report and predict performance for both the mainframe and client/server
computing environments.
The Company has established subsidiaries in the United Kingdom, Spain,
Australia, Hong Kong, Germany, The Netherlands, Sweden, France and Singapore to
act as distributors of its products in Europe, the Middle East, Africa,
Australia, New Zealand and Southeast Asia. Additionally, the subsidiaries
provide technical support, marketing and distribution support in their
geographic markets.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Intercompany transactions and
balances have been eliminated. Certain prior year amounts have been reclassified
to conform with current year presentation.
The Company completed an initial public offering of its $.01 par value
common stock on November 18, 1997 (the "IPO"). In preparation for the IPO, on
October 22, 1997, the Company increased the number of authorized shares of
common stock from 15 million shares to 30 million shares. A three-for-two stock
split of the common stock took effect on November 17, 1997. All references to
the number of shares authorized, issued and outstanding and per-share
information for all periods presented have been adjusted to reflect the effects
of the stock split and share authorization.
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash
flows, the Company considers all highly liquid investment instruments with an
original maturity of three months or less to be cash equivalents.
-30-
<PAGE> 31
Revenue Recognition
Revenues are recognized in accordance with Statement of Position (SOP)
97-2, "Software Revenue Recognition," as amended by SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition." Sales
of perpetual software licenses are recorded as revenues when persuasive evidence
of an arrangement exists, delivery has occurred, the fee is fixed and
determinable and collectibility is probable. Maintenance revenues generally are
collected prior to the performance of the related services and are recorded as
deferred revenue and recognized ratably over the period during which the
services are performed. For transactions involving both license and maintenance
revenues, the Company allocates the revenues based upon the relative vendor
specific objective evidence of fair values of the license and the maintenance
services.
In December 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position (SOP) 98-9, "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP
98-9 modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions are met. The Company adopted SOP 98-9 on January
1, 2000 and believes the adoption will not have a material effect on the
Company's financial condition or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recoginition in Financial Statements" (SAB 101) to provide guidance regarding
the recogonition, presentation and disclosure of revenue in financial
statements. The Company is currently evaluating the impact of the provisions of
SAB 101.
In certain circumstances, the Company enters into a long-term payment
arrangement with a licensee. Under these types of arrangements, the Company
allows the licensee to pay the license fees plus maintenance fees over a
three-to-five-year period, generally in annual installments. If collectibility
by the Company is probable, the Company records the present value of the
contracted stream of payments as an unbilled account receivable in its financial
statements. Of this amount, the Company recognizes the underlying license fee as
license revenue and defers the underlying maintenance fee. As installments are
invoiced to the licensee in accordance with the payment arrangement, the Company
reflects a reduction in its unbilled accounts receivable and an increase in its
accounts receivable. Historically, the Company has not granted concessions nor
experienced significant bad debts associated with these long-term payment
arrangements. At December 31, 1999 and 1998, unbilled accounts receivable have
been reduced by $1,313,000 and $1,599,000, respectively, to reflect such amounts
at their present values. The Company imputes interest based only on that portion
of the receivable allocated to the license element as (a) the license is
delivered immediately but paid for over an extended period and (b) the license
revenue is the only portion of the fee that is recognized at the time the
license agreement is entered. Imputed interest income on long-term receivables
is reported within "Interest and Other Income" on the Consolidated Statements of
Operations.
The Company has relationships with a number of third-party distributors to
market and distribute its products internationally. Under such arrangements, the
distributors report to, are invoiced by and remit payments to the Company based
on transactions with the ultimate customer. The Company records license revenues
and service revenues based upon transactions reported to the Company.
The Company records an accrual for estimated sales returns. Historically,
such amounts have not been material.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives used to compute
depreciation are generally five years for computer equipment, office equipment
and furniture. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the estimated useful lives of the
improvements or the term of the related lease.
Intangible Assets
In January 1997, the Company signed an agreement to acquire certain rights
and related assets from Infarmedica Holding AG ("Infarmedica"), a former
distributor of the Company's products. Under the terms of the
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<PAGE> 32
agreement governing this relationship, Infarmedica held exclusive rights to
market certain of the Company's products in Austria, the Benelux countries,
Germany and Switzerland. As a result of the 1997 agreement, the Company gained
access to a significant customer base in these European countries (including an
assignment of license and maintenance agreements) and established subsidiaries
in Germany and The Netherlands to support these customers directly. In
consideration for the acquisition of these rights, the Company paid Infarmedica
$1,800,000 in installment payments from 1997 through 1999, of which $497,000 was
paid in 1999, $488,000 was paid in 1998 and $815,000 was paid in 1997. In
addition, in January 1997 the Company granted Infarmedica a warrant to purchase
225,000 shares of the Company's common stock at $4.00 per share, which was fully
vested upon issuance, expires on January 1, 2007 and is transferable only with
the Company's consent. The fair value of the warrant was $48,000, calculated
using an option pricing model. The Company recorded the acquisition of the
customer base as an intangible asset representing the present value of the cash
payments plus the fair value of the warrant issued. The related intangible asset
was amortized over three years.
In January 1999, the Company signed an agreement to acquire certain rights
and related assets from Software Products Ltd. ("Software Products"), a former
international distributor of the Company's products. Under terms of the
agreement governing the distribution relationship, Software Products held
exclusive rights to market certain of the Company's products in the United
Kingdom. As a result of the 1999 agreement, the Company gained direct access to
its mainframe customers in the United Kingdom. As consideration for the
acquisition of these rights, the Company paid Software Products $4,000,000 in
cash. As further consideration, the Company issued to Software Products 91,586
shares of Company common stock, with a fair value of $850,000 and subject to
certain resale restrictions and registration rights. Additionally, the Company
granted Software Products a warrant to purchase 150,000 shares of the Company's
common stock at the then fair market value of $10.00 per share, which vested
upon issuance and expires in January 2009. The fair value of the warrant was
$540,000, calculated using an option pricing model assuming an expected warrant
life of 2 years, a risk free interest rate of 4.6% and stock volatility of 60%.
The Company recorded the acquisition of the customer base as an intangible asset
representing the cash payment and the fair value of the stock and warrant issued
and is amortizing the intangible asset over a five-year period.
In April 1999, the Company established a subsidiary, Landmark Systems
Singapore Pte Ltd. to act as a distributor of the Company's products in
Singapore.
In May 1999, the Company established a subsidiary, Landmark Systems
France, SARL, to act as a distributor of the Company's client/server products in
France. In October 1999, the Company acquired the distribution rights for its
mainframe products from its international distributor in France. Under terms of
the agreement to acquire the distribution rights, the Company paid the former
distributor $1,200,000. Additionally, the Company granted the former distributor
a warrant to purchase 100,000 shares of Company common stock at the then fair
market value of $7.50 per share, which vested upon issuance. The warrant expires
in October 2002 or October 2004 if certain conditions are met. The fair value of
the warrant was $333,000, calculated using an option pricing model assuming an
expected warrant life of three years, a risk free interest rate of 5.9% and
stock volatility of 60%. The Company recorded the acquisition of the customer
base as an intangible asset representing the cash payment and the fair value of
the warrant issued, and is amortizing the intangible asset over a five-year
period.
In June 1999, the Company acquired the distribution rights from its
international distributor in the Scandinavian countries and established a
subsidiary, Landmark Systems Nordic, AB, to act as a distributor of the
Company's products in the Scandinavian countries. Under terms of the agreement
to acquire the distribution rights, the Company will pay the former distributor
a royalty through June 2003 ranging from 65% to 85% of revenue received from the
licensing of certain products to, and the receipt of maintenance revenue
attributed to those products from, the former distributor's customers. Royalty
expense to the former distributor was $225,000 for the year ended December 31,
1999.
Amortization expense of costs to acquire distribution rights was
$1,776,000 for the year ended December 31, 1999 and $616,000 for each of the
years ended December 31, 1998 and 1997.
Software Development Costs
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<PAGE> 33
The Company accounts for its software development activities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Cost of Computer Software to be Sold, Leased or Otherwise Marketed." The
Company capitalizes costs incurred subsequent to the point of demonstrated
technological feasibility and up to the time the product is available for
release to customers. Amortization is computed on an individual product basis
and is the greater of (i) the ratio of current gross revenues for a product to
the total current and anticipated future gross revenues for the product or (ii)
the straight-line method over the estimated economic life of the product. The
Company amortizes capitalized software costs over an 18 months period.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"). SFAS 121 prescribes that an impairment loss is
recognized in the event that facts and circumstances indicate that the carrying
amount of an asset may not be recoverable, and an estimate of future
undiscounted cash flows is less than the carrying amount of the asset.
Impairment is recorded based on an estimate of future discounted cash flows.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. Under
APB No. 25, compensation expense is measured as the excess, if any, of the
market price of the Company's stock at the date of grant over the exercise price
of the option granted. Compensation expense for stock options, if any, is
recognized ratably over the vesting period. The Company provides additional pro
forma disclosures as required under SFAS No. 123, "Accounting for Stock-Based
Compensation" (Note 11).
Transactions for which non-employees are issued equity instruments for
goods or services received are recorded by the Company based upon the fair value
of the equity instruments issued or the fair value of the goods or services
received, whichever is more reliably measured.
Income Taxes
The Company provides for income taxes using the asset and liability
approach. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of the assets and
liabilities. A valuation allowance is recorded if, based on the evidence
available, it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components. The Company's total
comprehensive income is comprised of net income and other comprehensive income,
which consists of foreign currency translation adjustments, and is presented in
the Consolidated Statement of Changes in Stockholders' Equity.
Foreign Currency Translations
The functional currency for the Company's international subsidiaries is
the applicable local currency. The financial statements of international
subsidiaries are translated into U.S. dollars using exchange rates in effect at
period end for assets and liabilities and average exchange rates during each
reporting period for results of operations. Adjustments resulting from
translation of financial statements are included in stockholders' equity as
other comprehensive income. The Company does not attempt to hedge its foreign
currency exposures. Foreign
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<PAGE> 34
currency transaction losses of $32,000, $6,000 and $253,000 in 1999, 1998 and
1997, respectively, are included in other income.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate their
fair value due to the short maturity of those instruments.
The Company has $12,416,000 and $11,214,000 of unbilled accounts
receivable outstanding at December 31, 1999 and 1998, respectively; the
estimated fair values of these receivables are $12,698,000 and $12,095,000,
respectively, calculated using discounted cash flows.
Concentrations of Credit Risk
Financial instruments that expose the Company to concentrations of credit
risk consist principally of accounts receivable and unbilled receivables. Credit
risk is limited due to the large number and geographic dispersion of customers
comprising the Company's customer base. No distributor or customer accounted for
more than 10% of the Company's total outstanding receivables.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates and assumptions.
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<PAGE> 35
Earnings Per Share
Basic earnings per share is computed by dividing the net income available
to common stockholders by the weighted-average number of shares of common stock
outstanding. Diluted earnings per share is computed by additionally reflecting
the potential dilution that could occur, using the treasury stock method, if
warrants and options to acquire common stock were exercised or resulted in the
issuance of common stock that then shared in the earnings of the Company. The
following is a reconciliation of the numerators and denominators for basic and
diluted earnings per share for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ----------- ------
<S> <C> <C> <C>
For the year ended December 31, 1999
Basic EPS
Net income available to common stockholders $4,077,052 12,407,132 $0.33
Effect of dilutive securities
Common stock options and warrants - 736,252
---------- ----------
Diluted EPS $4,077,052 13,143,384 $0.31
========== ==========
For the year ended December 31, 1998
Basic EPS
Net income available to common stockholders $5,122,113 11,491,395 $0.45
Effect of dilutive securities
Common stock options and warrants - 881,634
--------- ----------
Diluted EPS $5,122,113 12,373,029 $0.41
========= ==========
For the year ended December 31, 1997
Net income $3,005,652
Less accretion and dividends on
Preferred stock (1,475,409)
----------
Basic EPS
Net income available to common stockholders 1,530,243 7,876,208 $0.19
Effect of dilutive securities
Common stock options and warrants -- 889,056
---------- ---------
Diluted EPS $1,530,243 8,765,264 $0.17
========== =========
</TABLE>
NOTE 3 -- SALE OF UNBILLED ACCOUNTS RECEIVABLE
During 1999 and 1998, the Company sold, without recourse, unbilled
accounts receivables with a book value of $8,772,000 and $7,821,000,
respectively, to augment the Company's cash flow. The unbilled receivables sold
were from customers in the U.S. with remaining payments of up to four years. The
transactions were accounted for pursuant to SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
and resulted in immaterial gains and losses for the Company.
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<PAGE> 36
NOTE 4 -- FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Computer equipment $ 7,138,539 $ 5,782,284
Office equipment 5,731,046 5,409,056
Furniture and equipment 3,410,396 3,197,527
Leasehold improvements 2,575,885 1,572,812
---------- -----------
18,855,866 15,961,679
Less accumulated depreciation (13,492,593) (11,840,389)
----------- -----------
Fixed assets, net $5,363,273 $ 4,121,290
========== ===========
</TABLE>
Depreciation expense was approximately $1,666,000, $1,385,000 and
$1,201,000 in 1999, 1998 and 1997, respectively.
NOTE 5 -- CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Capitalized software costs $ 21,019,994 $ 20,163,698
Less accumulated amortization (20,153,035) (19,905,976)
----------- -----------
Capitalized software, net $ 866,959 $ 257,722
============ ============
</TABLE>
The Company capitalized software development costs of approximately
$856,000 and $258,000 during 1999 and 1998, respectively. The Company did not
capitalize any software development costs in 1997, as any amounts eligible for
capitalization were not material. Amortization expense of capitalized software
costs was approximately $247,000, $400,000 and $1,250,000 in 1999, 1998 and
1997, respectively.
NOTE 6 -- DEBT
In December 1998, the Company paid the remaining balance of its debt. This
debt consisted of a note payable with an interest rate of 9% which was secured
by fixed assets and was due in monthly installments from February 1996 through
January 1999. The Company did not pay any interest in 1999. The Company paid
interest of approximately $42,000 and $276,000 in 1998 and 1997, respectively.
In March 1999, the Company obtained a revolving line of credit in the
amount of $10,000,000. The line of credit, which is unsecured, has a floating
interest rate of LIBOR plus 1.35% and expires June 30, 2000. No advances have
been made on the line of credit. This agreement includes administrative fees of
0.25% on the unused balance of the line of credit.
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<PAGE> 37
NOTE 7 -- SEGMENT INFORMATION
The Company classifies its operations into one industry segment, software
development and related services. The Company categorizes its products and
services into two groups: mainframe and client/server. The Company's revenues by
product group consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Mainframe $45,395,464 $42,342,260 $37,741,852
Client/server 9,806,970 7,489,974 5,620,643
---------- ----------- -----------
Total revenues $55,202,434 $49,832,234 $43,362,495
=========== =========== ===========
</TABLE>
The Company sells its products outside the United States through its
subsidiaries and international distributors. Revenues from international
distributors are presented net of royalties paid to the distributors. The
Company's revenues by country or geographic region are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $37,763,652 $33,316,805 $28,786,077
Germany 3,665,206 4,165,628 2,666,617
United Kingdom 2,836,637 2,391,301 1,697,749
Benelux 1,815,552 2,126,476 1,359,219
Australia 1,782,883 1,553,149 1,512,141
Other 7,338,504 6,278,875 7,340,692
----------- ----------- -----------
Total revenue $55,202,434 $49,832,234 $43,362,495
=========== =========== ===========
</TABLE>
The Company's long-lived assets, which consist of fixed assets,
capitalized software and intangible assets, by country or geographic region are
as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $11,815,246 $4,760,777 $4,630,314
Europe 220,807 185,372 193,744
Other 48,291 48,863 57,556
----------- ---------- ----------
Long-lived assets $12,084,344 $4,995,012 $4,881,614
=========== ========== ==========
</TABLE>
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<PAGE> 38
NOTE 8 -- INCOME TAXES
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $ 6,791,643 $7,848,582 $5,560,340
International subsidiaries (396,270) 368,229 (627,244)
---------- ---------- ----------
Income before taxes $6,395,373 $8,216,811 $4,933,096
========== ========== ==========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current taxes payable:
U.S. Federal $ 1,447,293 $ 2,664,377 $ 994,371
Foreign 702,674 762,284 520,103
State and local 256,335 195,898 143,600
--------- --------- ----------
2,406,302 3,622,559 1,658,074
--------- --------- ----------
Deferred tax provision (benefit):
U.S. Federal 128,388 (527,255) 333,311
Foreign (227,373) 44,587 (89,822)
State and local 11,004 (45,193) 25,881
---------- ----------- ------------
(87,981) (527,861) 269,370
---------- ----------- ------------
Provision for income taxes $2,318,321 $3,094,698 $ 1,927,444
========== ========== ============
</TABLE>
The Company paid income taxes of approximately $3,446,000, $2,795,000 and
$1,334,000 in 1999, 1998 and 1997, respectively. Foreign taxes paid relate
primarily to taxes withheld from revenues remitted by international
distributors.
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<PAGE> 39
The Company provides deferred taxes for temporary differences between the
bases of assets and liabilities for financial reporting purposes and the bases
of assets and liabilities for tax return purposes. The net deferred tax assets
at December 31, 1999 and 1998 are attributable to the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred revenue $ 938,515 $ 938,515
Stock incentive plan - 37,881
Allowance for doubtful accounts 278,960 490,107
Tax credit carryforwards 319,491 319,491
Sublease and general sales tax accrual (29,154) 70,290
Capitalized software development costs 82,947 306,812
Losses from subsidiaries not utilized 606,057 365,235
Depreciation and amortization 1,004,499 519,687
Other 115,824 215,861
Valuation allowance (333,000) (449,000)
---------- ----------
2,984,139 2,814,879
Deferred tax liabilities:
Depreciation and amortization (157,260) (76,000)
---------- ----------
Net deferred tax assets $2,826,879 $2,738,879
========== ==========
Current deferred tax assets $1,333,482 $1,644,482
Non-current deferred tax assets 1,493,397 1,094,397
---------- ----------
Net deferred tax assets $2,826,879 $2,738,879
========== ==========
</TABLE>
As of December 31, 1999 and 1998, the Company had a valuation allowance of
$333,000 and $320,000, respectively, to reflect foreign tax credit carryforwards
that, in the Company's estimation, would more likely than not expire prior to
utilization. The Company recorded an increase to the valuation allowance of
$13,000 in 1999 to reflect the tax effect of estimated international subsidiary
net operating losses.
Competent authority is a process to resolve unintended results between the
U.S. and foreign taxing jurisdictions. In 1996, the Company established a
provision for competent authority of $129,000 to reflect management's belief
that the outcome of this process would likely result in a liability. In 1999, it
was determined that the issues were resolved and the provision for competent
authority of $129,000 was released.
At December 31, 1999, the Company had foreign net operating loss
carryforwards of approximately $1,670,000, of which $240,000 expires in the year
2004. The remaining $1,430,000 carries forward indefinitely and is available to
offset future foreign taxable income.
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<PAGE> 40
The provision for income taxes differs from the amount of taxes determined
by applying the U.S. Federal statutory rate to income before income taxes as a
result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computation of U.S. Federal income
taxes at the statutory rate 34.0% 35.0% 34.0%
State and local taxes, net of Federal
income tax benefit 2.7 1.6 1.9
Change in valuation allowance 0.2 (0.1) 2.8
Change in provision for competent
authority (2.0) - (1.9)
Other 1.4 1.2 2.3
---- ---- ----
Provision for income taxes 36.3% 37.7% 39.1%
==== ==== ====
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan. During 1999, 1998 and
1997, the Company matched 50% of the first 3% of employees' deferred
contributions. Employees are fully vested in all Company contributions. The
Company recorded expense for its matching contributions of approximately
$273,000, $228,000 and $217,000 during 1999, 1998 and 1997, respectively.
NOTE 10 -- MANDATORILY REDEEMABLE PREFERRED STOCK
Prior to the IPO, the Company had issued two classes of preferred stock:
Series A Preferred Stock and Series B Preferred Stock. All shares of preferred
stock outstanding were converted to common stock at the time of the IPO.
Mandatorily Redeemable Series A Preferred Stock
The Company's Series A Preferred Stock paid cumulative dividends effective
May 1, 1992 at an annual rate of $0.15 per share until April 30, 1997, and
thereafter at an annual rate of $0.375 per share.
The Company was required to redeem $1,500,000 of Series A Preferred Stock
each year ("redemption year") plus accumulated dividends, beginning May 1, 1997,
at a redemption price equal to $5.00 per share plus 75% of the amount, if any,
by which the lesser of (i) 1.5 multiplied by the fair market value per share of
the common stock as determined by the Board of Directors (the "Board") at the
beginning of the redemption year or (ii) $7.4333 per share, exceeds $5.00 per
share.
The holders of Series A Preferred Stock could convert all, but not less
than all, of the preferred shares into common stock at the time of the IPO based
upon the relationship between the redemption price and the IPO price of the
Company's common stock. At the time of the IPO, the 855,165 shares of Series A
Preferred Stock then outstanding were converted into 833,785 shares of common
stock.
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<PAGE> 41
Mandatorily Redeemable Series B Preferred Stock
In March 1997, the Company issued 316,156 shares of Series B Preferred
Stock at a price of $6.326 per share and, in April 1997, an additional 79,039
shares of Series B Preferred Stock at a price of $6.326 per share. The Series B
Preferred Stock was convertible, at the option of the holder, into the Company's
common stock based on a ratio of $6.326 to a conversion price. Additionally, the
Series B Preferred Stock was redeemable at the holder's option at the earlier of
December 31, 2000 or six months after an IPO of the Company's common stock.
Each outstanding share of Series B Preferred Stock was automatically
convertible into 1.5 shares of the Company's common stock immediately upon the
closing of a qualified public offering, as defined. Accordingly, at the time of
the IPO, the 395,195 shares of Series B Preferred Stock then outstanding were
converted into 592,793 shares of common stock.
The following table summarizes the activity with respect to the Series A
Preferred Stock and Series B Preferred Stock:
<TABLE>
<CAPTION>
Series A Preferred Stock Series B Preferred Stock
------------------------ ------------------------
Redemption Redemption
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Balance at December 31, 1996 1,020,000 $ 5,865,000 -- --
Issuance of Series B preferred stock -- -- 395,195 $ 2,500,000
Redemption of Series A preferred
stock (164,835) (1,124,999) -- --
Adjustment to redemption value -- 1,096,500 -- 136,079
Conversion to common stock (855,165) (5,836,501) (395,195) (2,636,079)
--------- ----------- ---------- ------------
Balance at December 31, 1997 -- $ -- -- $ --
========= =========== ========== ============
</TABLE>
NOTE 11 -- COMMON STOCK INSTRUMENTS AND STOCKHOLDERS' EQUITY
Stock Purchase Plans
During 1998, the Company adopted the 1998 Stock Purchase Plan ("1998 SPP")
which replaced the 1991 Employee Stock Purchase Plan ("1991 ESPP"). Under the
1998 SPP, eligible employees may use up to 10 percent of their gross cash
compensation to purchase shares of the Company's common stock at a purchase
price equal to 85 percent (90 percent during 1998 and the first three quarters
of 1999) of the fair value of the stock as of the last day of the previous
quarter or the day before the last day of the current quarter, whichever is
lower. For the plan years ended April 30, 1998 and 1997, the Board made 75,000
shares available for purchase under the 1991 ESPP. Under the 1991 ESPP, eligible
employees could purchase shares valued at up to 10 percent of their gross cash
compensation at fair value as determined by the Board. During 1999, 1998 and
1997, 71,534, 39,512 and 64,716 shares, respectively, were purchased under the
stock purchase plans.
Prior to the IPO, the shares employees purchased under the 1991 ESPP were
subject to certain transfer restrictions. Without the prior written consent of
the Company, an employee could not sell, assign or transfer any common stock
purchased under this plan to any person or entity other than the Company,
another stockholder or employee. Under certain conditions, the employee could
require the Company to repurchase his shares at fair value. At any time
following the termination of an individual's employment, the Company had the
right to repurchase the employee's shares acquired through the 1991 ESPP at fair
value. These rights and restrictions lapsed at the time of the IPO.
Stock Incentive Plans
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<PAGE> 42
The Company has three stock incentive plans that provide for the granting
of stock options to employees and executives of the Company: the 1994 Stock
Incentive Plan ("1994 SIP"), the 1989 Stock Incentive Plan ("1989 SIP") and the
1992 Executive Stock Incentive Plan ("1992 ESIP"). Options under these plans are
granted at the fair market value of the Company's common stock at the date of
grant, vest over a four-year period and expire ten years after the grant date.
The 1994 SIP replaced the 1989 SIP and the 1992 ESIP and no additional grants
will be made under the 1989 SIP or the 1992 ESIP. Options outstanding under the
1989 SIP and the 1992 ESIP will remain outstanding until the options terminate
or are exercised.
Prior to the IPO, while employed by the Company, a holder of options
granted under the 1989 SIP and the 1992 ESIP had the right to require the
Company to repurchase at the fair market value, as established by the Board, all
or any portion of his (i) option shares and (ii) restricted stock provided that
certain of the conditions had been met. The Company also had the right to
repurchase at the fair market value, at any time following the termination of a
grantee's employment with the Company, all or any portion of the option shares
or restricted stock then held by the grantee. These repurchase rights lapsed at
the time of the IPO.
As of December 31, 1999, a total of 4,500,000 shares of common stock can be
issued under the 1994 SIP through (i) qualified stock options, which qualify as
incentive stock options and have an exercise price equal to or greater than the
fair market value of the common stock at the date of grant, (ii) non-qualified
stock options, which have an exercise price equal to or greater than 85% of the
fair market value of the common stock on the date of grant, (iii) restricted
stock awards for common stock at a price determined by the Board, but not less
than 85% of the fair market value of the stock at the date of grant, which is
non transferable and subject to repurchase at the holder's cost until Board
designated conditions have been met, or (iv) stock bonuses.
1996 Advisory Board and Directors Stock Incentive Plan
Options granted under the 1996 Advisory Board and Directors Stock Incentive
Plan (the "1996 ABP") are granted at the market value of the Company's common
stock on the date of grant, vest over a four year period and expire ten years
after the grant date. In 1999, 1998, and 1997 the Company granted options
totaling 66,000, 36,000, and 12,000, respectively, to its Board members. In
October 1997, the Company terminated the Advisory Board, accelerated the vesting
of 18,000 options granted pursuant to the 1996 ABP which were scheduled to vest
on December 31, 1997, and canceled 36,000 unvested options granted pursuant to
the 1996 ABP.
Other Stock Options
In 1997, the Company issued 128,002 options to former employees of the
Company to replace options previously issued under the 1989 SIP, the 1992 ESIP
and the 1994 SIP which expired unexercised concurrent with or subsequent to
separation from the Company. The terms of the options granted were similar to,
but not identical to, the terms of the options they replaced. The Company
recorded compensation expense associated with these options of $60,000 in 1997.
-42-
<PAGE> 43
Options Outstanding and Exercisable
The following table summarizes information about options outstanding for
all stock option plans:
<TABLE>
<CAPTION>
Shares Price Per Weighted- Average
Outstanding Share Exercise Price
Under Option Under Option Per Share
------------- ------------ ---------
<S> <C> <C> <C>
Balance at December 31, 1996 2,793,632 $ 3.00--$4.00 $ 3.67
Stock options granted 605,452 3.33-- 4.97 3.97
Stock options exercised (490,435) 3.00-- 4.00 3.38
Stock options canceled (348,821) 3.33-- 4.00 3.88
Stock options expired (48,875) 3.59-- 4.00 3.95
---------
Balance at December 31, 1997 2,510,953 3.00-- 4.97 3.76
Stock options granted 839,875 6.13--10.75 8.27
Stock options exercised (529,742) 3.17-- 8.63 3.79
Stock options canceled (344,103) 3.33-- 8.63 5.45
---------
Balance at December 31, 1998 2,476,983 3.00--10.75 5.01
Stock options granted 1,300,402 7.44--13.38 10.55
Stock options exercised (892,385) 3.00-- 8.63 3.66
Stock options canceled (276,871) 4.00--12.88 9.08
---------
Balance at December 31, 1999 2,608,129 $ 3.17--$13.38 $ 7.78
=========
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1999 by plan:
<TABLE>
<CAPTION>
Total Options Total Options Total Options Available
Outstanding Exercisable for Future Grant
----------- ----------- ----------------
<S> <C> <C> <C>
1994 SIP 2,304,129 576,946 1,180,274
1996 ABP 162,000 63,000 126,000
Other stock options 142,000 142,000 -
---------- ------- ----------
Totals 2,608,129 781,946 1,306,274
========= ======= =========
</TABLE>
At December 31, 1999, the average exercise price per share of exercisable
options was $5.77. The unvested options vest primarily over a four-year period
and will be fully vested in the year 2003. The remaining average option life is
7.5 years.
-43-
<PAGE> 44
For stock options granted prior to the IPO, the Company estimated the fair
value of each employee option grant on the date of grant using a minimum value
model. The weighted-average assumptions included in the Company's fair value
calculations are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Expected life (years) 5 5 5
Risk-free interest rate 4-6% 4-6% 5-6%
Volatility 70% 60% 0%
Dividend yield 0% 0% 0%
</TABLE>
The weighted-average fair value of stock options granted under the employee
stock option plans during 1999, 1998 and 1997 was $6.57, $4.64 and $1.05,
respectively. Had the Company determined compensation costs for these option
plans and the stock purchase plans in accordance with SFAS No. 123 (Note 2), the
Company's net income for 1999 would have been approximately $2,076,000 or $0.17
per basic share and $0.16 per diluted share. The Company's net income for 1998
would have been approximately $4,418,000, or $0.38 per basic share and $0.36 per
diluted share. The Company's net income for 1997 would have been approximately
$2,645,000, or $0.15 per basic and $0.13 per diluted share. The SFAS No. 123
method of accounting does not apply to options granted prior to January 1, 1995
and, accordingly, the resulting pro forma compensation cost may not be
representative of future amounts.
Stock Compensation Expense
The Company records stock compensation expense for the amount, if any, by
which the fair market value of the Company's common stock exceeds the option
exercise price at the date of the option grant. Prior to the IPO, the Company
also recorded stock compensation expense for shares and options outstanding
under the 1989 SIP, the 1992 ESIP and the 1991 ESPP to reflect any increase in
the amount at which the holders could require the Company to repurchase such
shares. The Company records stock compensation benefit to reflect any
forfeitures of unvested stock options. The Company recorded stock compensation
expense of approximately $0, $100,000 and $591,000 in 1999, 1998 and 1997,
respectively. Prior to the IPO, the Board determined the fair value of the
Company's common stock. The fair value of the Company's common stock effective
May 1, 1997 was $4.97.
Redeemable Common Stock Instruments
The redeemable common stock instruments represent the shares of common
stock and stock options issued by the Company to certain employees pursuant to
the 1989 SIP, the 1992 ESIP, the 1991 ESPP and other agreements whereby the
holder had the right to require the Company to repurchase such shares at their
current fair market value. The rights of holders of redeemable common stock
instruments to require the Company to repurchase such shares automatically
lapsed at the time of the IPO.
-44-
<PAGE> 45
The following table summarizes the activity with respect to the
redeemable common stock instruments:
<TABLE>
<CAPTION>
Shares of
Common Stock Redemption
Underlying Shares of Value of
Redeemable Redeemable Common Stock
Stock Options Common Stock Instruments
------------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996 572,010 50,360 $ 703,930
Adjustment to redemption value -- -- 425,834
Redeemable common stock issued (173,265) 242,963 820,007
Redeemable common stock repurchased by the
Company -- (19,433) (93,366)
Cancellation of redeemable stock options (20,967) -- (4,185)
Waiver of rights to require repurchase (213,750) (8,240) (237,108)
Lapse of rights to require repurchase (164,028) (265,650) (1,615,112)
-------- -------- ---------
Balance at December 31, 1997 -- -- $ --
======== ======== =========
</TABLE>
NOTE 12 -- COMMITMENTS
During 1988, the Company entered into a ten-year lease for office space
which included a rent abatement for one and one half years. Rental expense has
been calculated as total rental payments spread ratably over the life of the
lease. An accrued rent expense is created in years when rent expense exceeds
cash payments. In 1996, the Company extended the lease commitment by five years.
The current and long-term portions of the deferred rent abatement at December
31, 1999 are approximately $87,000 and $218,000, respectively, and have been
included in accrued expenses or other liabilities, as appropriate.
During 1998, the Company entered into a lease for office space for the
Company's new headquarters facility, and concurrently subleased the Company's
existing headquarters facility at terms which are comparable to those contained
within the Company's existing lease. The Company moved into the new facility in
June 1999 and turned its existing premises over to the subleasee at that time.
The lease for the new facility has a twelve-year term.
The Company is committed for the payment of minimum rentals, exclusive of
escalation charges and renewal options and net of sublease income, under office
space, computer and other equipment operating lease agreements through 2004 for
the following amounts:
<TABLE>
<CAPTION>
Year ending December 31,
-------------------------
<S> <C>
2000 $ 3,200,000
2001 2,700,000
2002 1,800,000
2003 1,700,000
2004 1,800,000
Thereafter 11,900,000
-----------
Total $23,100,000
===========
</TABLE>
Additionally, the Company leases certain equipment under cancelable
operating leases. The total rental expense under all equipment and office space
operating leases was approximately $3,800,000, $3,200,000 and $2,700,000 in
1999, 1998 and 1997, respectively.
-45-
<PAGE> 46
NOTE 13 - UNAUDITED QUARTERLY RESULTS
The following table sets forth unaudited quarterly consolidated statements
of operations data for the years ended December 31, 1999, 1998 and 1997 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Mar 31, Jun 30, Sep 30, Dec 31,
------ ------ ------ ------
<S> <C> <C> <C> <C>
1999
Total revenues $13,798 $14,325 $13,001 $14,078
Gross profit 11,900 12,382 11,052 11,972
Net Income 1,452 1,439 300 886
Earnings per share
Basic 0.12 0.12 0.02 0.07
Diluted 0.11 0.11 0.02 0.07
1998
Total revenues 10,300 12,144 12,369 15,019
Gross profit 8,893 10,642 11,225 13,599
Net income 692 954 1,423 2,053
Earnings per share
Basic 0.06 0.08 0.12 0.18
Diluted 0.06 0.08 0.11 0.16
1997
Total revenues 9,995 9,960 10,422 12,985
Gross profit 8,573 8,475 8,997 11,433
Net income 357 170 695 1,783
Earnings per share
Basic 0.04 (0.14) 0.07 0.19
Diluted 0.04 (0.14) 0.07 0.16
</TABLE>
-46-
<PAGE> 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information with respect to directors required by this item is incorporated
by reference from the Company's 2000 Proxy Statement to be filed with the
Securities and Exchange Commission by May 1, 2000.
The information with respect to officers required by this item is included at
the end of Part I of this document under the heading "Executive Officers of the
Company."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
Company's 2000 Proxy Statement to be filed with the Securities and Exchange
Commission by May 1, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from the
Company's 2000 Proxy Statement to be filed with the Securities and Exchange
Commission by May 1, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Company's 2000 Proxy Statement to be filed with the Securities and Exchange
Commission by May 1, 2000.
-47-
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Listed below are the documents filed as a part of this report:
1. Financial Statements and the Independent Accountants Report:
Report of Independent Accountants
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement
Schedule
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits:
<TABLE>
<S> <C>
3.1 Articles of Incorporation (incorporated by
reference to Exhibit 3.1 forming a part of
the Company's registration statement on Form
S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the
Securities Act of 1933, as amended.)
3.2 Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 forming a part of
the Company's registration statement on Form
S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the
Securities Act of 1933, as amended.)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen certificate of Common Stock
(incorporated by reference to Exhibit 4.2
forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629)
filed with the Securities and Exchange
Commission under the Securities Act of 1933,
as amended.)
10.1* Employment agreement between the Company and
Ralph E. Alexander dated April 9, 1997
(incorporated by reference to Exhibit 10.1
forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629)
filed with the Securities and Exchange
Commission under the Securities Act of 1933,
as amended.)
10.2* 1989 Stock Incentive Plan (incorporated by
reference to Exhibit 10.2 forming a part of
the Company's registration statement on Form
S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the
Securities Act of 1933, as amended.)
</TABLE>
-48-
<PAGE> 49
<TABLE>
<S> <C>
10.3* 1991 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.3
forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629)
filed with the Securities and Exchange
Commission under the Securities Act of 1933,
as amended.)
10.4* 1992 Executive Stock Incentive Plan
(incorporated by reference to Exhibit 10.4
forming a part of the Company's registration
statement on Form S-1 (File No. 333-35629)
filed with the Securities and Exchange
Commission under the Securities Act of 1933,
as amended.)
10.5* 1994 Stock Incentive Plan (incorporated by
reference to Exhibit 10.5 forming a part of
the Company's registration statement on Form
S-1 (File No. 333-35629) filed with the
Securities and Exchange Commission under the
Securities Act of 1933, as amended.)
10.6* 1996 Advisory Board and directors Stock
Incentive Plan (incorporated by reference to
Exhibit 10.6 forming a part of the Company's
registration statement on Form S-1 (File No.
333-35629) filed with the Securities and
Exchange Commission under the Securities Act
of 1933, as amended.)
10.7* 1998 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 99
forming a part of the Company's registration
statement on Form S-8 (File No. 333-61161)
filed with the Securities and Exchange
Commission under the Securities Act of 1933,
as amended.)
10.8/\ Deed of Lease between Boston Properties
Limited Partnership and Landmark Systems
Corporation dated January 30, 1998
22.1/\ Subsidiaries of the Company
23.1/\ Consent of PricewaterhouseCoopers LLP
27.1/\ Financial Data Schedule
</TABLE>
* Reflects management contract or other compensatory
arrangement required to be filed as an exhibit
pursuant to Item 14(c) of this Form 10-K.
/\ Filed herewith.
(b) Reports on Form 8-K:
None.
-49-
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LANDMARK SYSTEMS CORPORATION
<TABLE>
<S> <C>
Date: March 30, 2000 By: /s/ Katherine K. Clark
-------------- -----------------------
Katherine K. Clark
Chief Executive Officer and Director
(Duly Authorized Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 30, 2000.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Patrick H. McGettigan Chairman of the Board
- ----------------------------------
Patrick H. McGettigan
/s/ Katherine K. Clark President, Chief Executive Officer and Director
- ---------------------------
Katherine K. Clark (Principal Executive Officer)
/s/ Jeffrey H. Bergman Director
- ----------------------------------
Jeffrey H. Bergman
/s/ T. Eugene Blanchard Director
- ----------------------------------
T. Eugene Blanchard
/s/ Dennis J. Bowman Director
- ----------------------------------
Dennis J. Bowman
/s/ Patrick W. Gross Director
- ----------------------------------
Patrick W. Gross
/s/ Sudhakar V. Shenoy Director
- ----------------------------------
Sudhakar V. Shenoy
/s/ Frederick S. Rolandi, III Vice President and Chief Financial Officer
- ----------------------------------
Frederick S. Rolandi, III (Principal Accounting Officer)
</TABLE>
-50-
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Landmark Systems Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 29, 2000, relating to the consolidated financial statements,
appearing in Landmark Systems Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999 also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
February 29, 2000
<PAGE> 52
LANDMARK SYSTEMS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD OPERATIONS DEDUCTIONS END OF PERIOD
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for uncollectible accounts $382,044 $775,623 $(536,968) (A) $620,699
Deferred tax asset valuation allowance 410,000 44,000 -- 454,000
Year Ended December 31, 1998
Allowance for uncollectible accounts 620,699 1,315,193 (612,673) (A) 1,323,219
Deferred tax asset valuation allowance 454,000 (5,000) -- 449,000
Year Ended December 31,1999
Allowance for uncollectible accounts 1,323,219 727,506 (1,255,405) (A) 795,320
Deferred tax asset valuation allowance 449,000 -- (116,000) (B) 333,000
</TABLE>
(A) Uncollectible accounts written off and sales returns
(B) Reduction of tax valuation allowance
-51-
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
--------
<S> <C>
22.1 Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
</TABLE>
-52-
<PAGE> 1
EXHIBIT 10.8
DEED OF LEASE
-------------
Between
-------
BOSTON PROPERTIES LIMITED PARTNERSHIP
-------------------------------------
and
---
LANDMARK SYSTEMS CORPORATION
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
THE PREMISES...............................................................3
ARTICLE II
TERM.......................................................................4
ARTICLE III
BASE RENT..................................................................6
ARTICLE IV
ADDITIONAL RENT............................................................7
ARTICLE V
SECURITY DEPOSIT..........................................................12
ARTICLE VI
USE OF PREMISES...........................................................13
ARTICLE VII
ASSIGNMENT AND SUBLETTING.................................................14
ARTICLE VIII
MAINTENANCE AND REPAIRS...................................................16
ARTICLE IX
ALTERATIONS...............................................................17
ARTICLE X
SIGNS AND FURNISHINGS.....................................................18
ARTICLE XI
INSPECTION BY LANDLORD....................................................20
ARTICLE XII
INSURANCE.................................................................20
ARTICLE XIII
SERVICES AND UTILITIES....................................................21
ARTICLE XIV
LIABILITY OF LANDLORD AND TENANT..........................................23
ARTICLE XV
RULES AND REGULATIONS.....................................................25
ARTICLE XVI
DAMAGE OR DESTRUCTION.....................................................25
ARTICLE XVII
CONDEMNATION..............................................................27
ARTICLE XVIII
DEFAULT...................................................................27
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE XIX
BANKRUPTCY................................................................30
ARTICLE XX
SUBORDINATION; MORTGAGES..................................................30
ARTICLE XXI
HOLDING OVER..............................................................31
ARTICLE XXII
COVENANTS OF LANDLORD.....................................................32
ARTICLE XXIII
PARKING...................................................................32
ARTICLE XXIV
EXPANSION.................................................................34
ARTICLE XXV
[INTENTIONALLY DELETED]...................................................36
ARTICLE XXVI
RENEWAL...................................................................36
ARTICLE XXVII
COMMUNICATIONS EQUIPMENT..................................................38
ARTICLE XXVIII
[INTENTIONALLY DELETED]...................................................39
ARTICLE XXIX
[INTENTIONALLY DELETED]...................................................39
ARTICLE XXX
GENERAL PROVISIONS........................................................39
</TABLE>
ATTACHMENTS:
First Amendment to Lease
- ii -
<PAGE> 4
DEED OF LEASE
THIS DEED OF LEASE (the "Lease") is made as of the 30th day of January,
1998, by and between BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited
partnership (hereinafter referred to as "Landlord"), and LANDMARK SYSTEMS
CORPORATION, a Virginia corporation (hereinafter referred to as "Tenant").
RECITALS:
A. Landlord will acquire a building site known as Block 1 of Section 912
(the "Land"), which is Phase I of a project to be known as The Arboretum, to be
located on Sunrise Valley Drive, in Reston, Fairfax County, Virginia.
B. Tenant desires to cause Landlord to construct a building upon the Land
and to lease a portion of the rentable area of said building, and Landlord is
willing to construct said building and rent a portion of it to Tenant, upon the
terms, conditions, covenants and agreements set forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
covenant and agree as follows:
ARTICLE I
THE PREMISES
1.1 Landlord hereby leases and demises to Tenant and Tenant hereby leases
and accepts from Landlord, for the term and upon the terms and conditions
hereinafter set forth, the following described premises (the "Premises"):
(a) Approximately 75,000 square feet of rentable area (calculated in
accordance with the Washington, D.C. Association of Realtors standard method of
measurement in effect immediately prior to the Lease Commencement Date), on
either, at Tenant's option, (i) the first (1st), second (2nd) and third (3rd)
floors ("Premises Option 1") or (ii) the second (2nd), third (3rd) and fourth
(4th) floors ("Premises Option 2") of the four-story office building (the
"Building") which is to be built and situated on the Land. Tenant shall inform
Landlord of the Premises Option that Tenant selects on or before March 31, 1998.
The portion of the Building leased by Tenant is hereinafter referred to as the
"Premises."
(b) Upon Tenant's designation of the Premises, a diagram of the
Premises shall be added to this Lease as Exhibit A-1. Landlord shall promptly
notify Tenant in writing of the exact rentable area of the space designated by
Tenant as the Premises. Such rentable area calculation shall be subject to
confirmation prior to the Lease Commencement Date by Tenant's independent
architect. In the event the rentable area figure determined by Tenant's
architect differs by no more than three percent (3%) (higher or lower) from
Landlord's figure, then Landlord's figure shall be controlling. In the event the
rentable area figure determined by Tenant's architect differs by more than three
percent (3%) (higher or lower) from Landlord's figure, then Landlord and Tenant
(in coordination with their respective architects) shall endeavor in good faith
to resolve the discrepancy, and in the event they are not able to resolve such
discrepancy then Landlord and Tenant shall jointly appoint an independent
architect to resolve such discrepancy and the determination of such independent
architect shall be binding on both Landlord and Tenant, subject to the terms of
Section 1.3 below. The fees of such independent architect shall be shared
equally by Landlord and Tenant.
1.2 The lease of the Premises includes the right to use the adjacent
parking areas which are generally described on the site plan referenced on
Exhibit A, as more particularly described in Article XXIII below, and
- 3 -
<PAGE> 5
the right to use any common areas and facilities (including the Building's
loading docks, if any, doors, platforms, staging areas and freight elevators)
that are located in and adjacent to the Building.
1.3 The rentable area of the Building is expected to be approximately
95,584 rentable square feet, but may be greater or lesser than such figure. The
rentable area of the full floors to be leased by Tenant shall be approximately
24,778 rentable square feet per floor. The number of rentable square feet in the
Premises shall be more exactly determined upon design and construction of the
Building, in accordance with Section 1.1(b), and the rentable area of the
Premises shall be confirmed in the declaration described in Section 2.1(c)
below. Thereafter, no change shall be made in the determination of rentable area
of the Premises.
1.4 The floor plan for each floor in the Building will be rectangular in
shape with 30 x 35 foot column spacing and a "z-corridor". The Building will be
designed and constructed in accordance with the design and construction
standards applicable to comparable first-class suburban four-story office
buildings in the Reston area (other than in Reston Town Center). The Building
will, among other things, include a patio area located adjacent to the back of
the Building, which patio area will be connected to the existing nature reserve
by a pedestrian walkway.
ARTICLE II
TERM
2.1 (a) The term of this Lease (hereinafter referred to as the "Lease
Term") shall commence on the Lease Commencement Date, as determined pursuant to
Section 2.1(b) below, and continue for a period of twelve (12) years thereafter,
unless such Lease Term shall be extended, renewed or terminated earlier in
accordance with the provisions hereof. Notwithstanding the foregoing, if the
Lease Commencement Date shall occur on a day other than the first day of a
month, the Lease Term shall commence on such date and continue for the balance
of such month and for a period of twelve (12) years thereafter. The term "Lease
Term" shall include any and all renewals and extensions of the term of this
Lease.
(b) The Lease Commencement Date shall be the earlier of (i) the date
on which (A) the work and materials to be provided by Landlord pursuant to
Exhibit B are, or are deemed to be, substantially complete as determined
pursuant to Paragraph 10 of Exhibit B, but no earlier than April 1, 1999, and
(B) the lobby is completed, all elevators serving the Premises are in operation,
all the systems and fixtures servicing the Building (such as HVAC, electricity,
plumbing and water) are in good working order and Landlord is able to provide
all services required under the Lease, and the surface parking lot and access
road utilized by Tenant have been top-coated and striped and are operational,
the Building facade, roof and windows have been installed and completed, the
loading facility is operational and accessible to Tenant's equipment and
furniture installers, the entrance to the Building and the access system to
control entry to the Building have been completed, and all common areas of the
Building and the area adjacent to the Building are materially free of
construction materials and debris, as so certified by the Base Building
Architect (as hereinafter defined); or (ii) the date on which Tenant commences
the conduct of its business upon any portion of the Premises (it being agreed
that entry into the Premises for the installation of communications equipment
and wiring, building the Leasehold Work, or moving in Tenant's furniture and
fixtures shall not be considered the conduct of Tenant's business). In all
events, Landlord shall provide Tenant with sixty (60) days prior written notice
of the ten (10)-day period within which the conditions contained in clause (i)
of this Section 2.1(b) will be satisfied, and fifteen (15) days prior written
notice of the date on which such clause (i) conditions have been satisfied.
Notwithstanding the foregoing, in the event Landlord's Work pursuant to Exhibit
B has been substantially completed on one or more full floors within the
Premises prior to the Lease Commencement Date, and if Tenant desires to occupy
all or a portion of such full floor(s) for the conduct of its business prior to
the Lease Commencement Date and Landlord agrees to permit such early occupancy
by Tenant, then such early occupancy shall not cause the Lease Commencement Date
to occur, but all the terms of this Lease (including,
- 4 -
<PAGE> 6
without limitation, the requirement that Tenant pay annual base rent and
additional rent with respect to such full or partial floors) shall apply with
respect to each space thus occupied by Tenant from the date that Tenant takes
occupancy thereof.
(c) Promptly after the Lease Commencement Date is ascertained,
Landlord and Tenant shall execute a written declaration setting forth the Lease
Commencement Date, the date upon which the Lease Term will expire, and the exact
number of square feet of rentable area in the Premises, subject to Section 1.3
above. The form of such declaration is attached hereto as Exhibit C and made a
part hereof.
(d) It is presently anticipated that the Lease Commencement Date will
occur on or about July 1, 1999 (the "Anticipated Commencement Date"). Landlord
shall incur no liability to Tenant, and this Lease shall not be rendered void or
voidable, in the event the Lease Commencement Date has not occurred by the
Anticipated Commencement Date for any reason, except as otherwise provided in
this Lease. In the event the Lease Commencement Date has not occurred by the
Anticipated Commencement Date, which date shall be extended by one (1) day for
each day of delay caused by Tenant Delay (as defined in Exhibit B attached
hereto), and such delay causes Tenant (i) to hold over beyond the termination
date under its existing lease (the "Existing Lease") for premises at 8000 Towers
Crescent Drive, Vienna, Virginia (the "Existing Space") in connection with the
recapture of the Existing Space by the landlord under the Existing Lease or (ii)
to incur any penalties under any sublease for the Existing Space for failure to
deliver the Existing Space within the time periods described in any such
sublease for the Existing Space, then Landlord shall be obligated to make the
following payments to Tenant with respect to the period commencing on the
Anticipated Commencement Date (as thus extended) and ending on the Outside Date
(as hereinafter defined) (collectively, the "Delay Costs"):
An amount, payable on a monthly basis, equal to Three Thousand Two
Hundred Forty-Five Dollars ($3,245.00) per day for each day of delay
in the Lease Commencement Date beyond the Anticipated Commencement
Date.
Prior to the execution of this Lease, Tenant has furnished Landlord with copies
of any existing subleases for the Existing Space, and Tenant represents and
warrants that the penalty provisions thereof have not been modified and are in
full force and effect. Tenant shall advise and consult with Landlord with
respect to all negotiations with the subtenants under any subleases for the
Existing Space regarding penalties for delay in delivery of the Existing Space
and Tenant shall pursue such reasonable strategy and positions as may be
suggested by Landlord in connection with Tenant's negotiations with such
parties; provided that, if Tenant pursues such strategy and positions suggested
by Landlord and consequently incurs legal expenses relating to legal action (or
the threat thereof) between Tenant and such parties, then Landlord shall
compensate Tenant for the out-of-pocket legal costs (including reasonable
attorneys' fees) thus incurred by Tenant.
(e) [Intentionally deleted.]
(f) In the event the Lease Commencement Date has not occurred by
October 1, 1999 (which date shall be extended, however, by one day for each day
of delay attributable to Tenant Delay, and as thus extended is referred to
herein as the "Outside Date"), then Tenant shall have the right to terminate
this Lease by providing ten (10) days written notice to Landlord at any time
following the Outside Date, in which event the term of this Lease shall be
terminated as of the date such notice is given and all rights, obligations, and
liabilities of the parties hereunder shall thereafter be released and discharged
and, within five (5) business days after such termination, Landlord shall return
to Tenant all rent, if any, previously paid to Landlord under this Lease and any
security delivered in connection with this Lease. Notwithstanding the foregoing,
in the event Landlord, within five (5) business days following its receipt of
Tenant's notice of termination, certifies to Tenant in writing that the
conditions to the Lease Commencement Date (as defined in Section 2.1(b) above)
shall occur no later than thirty (30) days following the date of Tenant's
termination notice, then, provided the conditions to the
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<PAGE> 7
Lease Commencement Date do in fact occur within thirty (30) days following the
date of Tenant's termination notice, and in all events prior to the date on
which tenant under any sublease for the Existing Space has exercised any
termination right contained in such sublease, Tenant's termination notice shall
be of no force and this Lease shall remain in force and effect. If Landlord
furnishes the certification described in the immediately preceding sentence but
either the conditions to the Lease Commencement Date do not in fact occur within
thirty (30) days following the date of Tenant's termination notice or the tenant
under any sublease for the Existing Space exercises any termination right
contained in such sublease, then Tenant's termination notice (unless rescinded
by Tenant in writing before the expiration of the aforesaid thirty (30) day
period) shall remain in force and this Lease shall terminate upon expiration of
the thirty (30) day period as described above.
2.2 For purposes of this Lease, the term "Lease Year" shall mean either (a)
each period of twelve (12) consecutive calendar months commencing on the first
day of the month immediately following the month in which the Lease Commencement
Date occurs, and on each anniversary of such date, except that the first Lease
Year shall also include the period from the Lease Commencement Date to the first
day of the following month; or (b) if the Lease Commencement Date shall occur on
the first day of a calendar month, each period of twelve (12) consecutive
calendar months commencing on the Lease Commencement Date and on each
anniversary of such date; whichever is applicable.
ARTICLE III
BASE RENT
3.1 During the first Lease Year, Tenant shall pay to Landlord as annual
base rent, net of all Expenses (which term is defined in Section 4.2 below), for
the Premises, without set off, deduction or demand, an amount equal to the sum
of Sixteen and 00/100 Dollars ($16.00) multiplied by the total number of square
feet of rentable area in the Premises, which amount shall be subject to annual
adjustment as provided in Section 3.2 hereof. The annual base rent payable
hereunder during each Lease Year shall be divided into equal monthly
installments and such monthly installments shall be due and payable in advance
on the first day of each month during such Lease Year.
3.2 Commencing on the first day of the second (2nd) Lease Year and on the
first day of each and every Lease Year thereafter, the annual base rent payable
for such Lease Year shall be increased by two and one-half percent (2.5%) over
the escalated base rent in effect during the preceding Lease Year. Accordingly,
the annual base rent in each Lease Year following the first Lease Year shall be
the amount set forth in the following table:
<TABLE>
<CAPTION>
Annual Base Rent per
Lease Year Rentable Square Foot
---------- --------------------
<S> <C>
2 $16.40
3 $16.81
4 $17.23
5 $17.66
6 $18.10
7 $18.55
8 $19.02
9 $19.49
10 $19.98
11 $20.48
12 $20.99
</TABLE>
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<PAGE> 8
3.3 All rent shall be paid to Landlord in legal tender of the United States
at the address to which notices to Landlord are to be given or to such other
address as Landlord may designate from time to time by written notice to Tenant.
If Landlord shall at any time accept rent after it shall come due and payable,
such acceptance shall not excuse a delay upon subsequent occasions, or
constitute or be construed as a waiver of any of Landlord's rights hereunder.
ARTICLE IV
ADDITIONAL RENT
4.1 An integral part of Landlord's leasing program for the Building
involves the requirement that Tenant bear its pro rata share (based upon the
ratio of the rentable area of the Premises to the rentable office area of the
Building) of the costs and expenses described in Section 4.2 below which are
incurred each year in the operation of the Building. As of the date hereof,
Landlord anticipates that the total number of rentable square feet in the
Building (all of which shall be office space) is 95,584. Such number shall be
confirmed on Exhibit C attached hereto following completion of construction of
the Building. Tenant's proportionate share of Operating Expenses (as hereinafter
defined) shall be a fraction, the numerator of which is the rentable square feet
constituting the Premises and the denominator of which is the total rentable
square feet of office space in the Building), and Tenant's proportionate share
of Real Estate Taxes (as hereinafter defined) shall be a fraction, the numerator
of which is the rentable square feet constituting the Premises and the
denominator of which is the total rentable square feet in the Building. Tenant's
proportionate share of Operating Expenses and Real Estate Taxes shall be
confirmed on Exhibit C hereto following completion of construction of the
Building.
4.2 The costs and expenses (the "Expenses") for which Tenant shall be
responsible are defined as follows:
(a) "Operating Expenses" shall mean and include those direct
reasonable expenses actually incurred and paid in operating and maintaining the
Building in a manner consistent with the operating and maintenance standards
observed at similar first-class buildings located in Fairfax County, Virginia,
including the following: (1) electricity, gas, water, sewer and other utility
charges of every type and nature; (2) premiums and other charges for insurance
(including, but not limited to, property insurance, rent loss insurance and
liability insurance); (3) all management fees incurred in the management of the
Building (subject to the limitations set forth below); (4) all costs incurred in
connection with service and maintenance contracts; (5) maintenance and repair
expenses and supplies; (6) amortization (calculated over the useful life of the
improvement, with interest at Landlord's cost of funds or (if the improvement is
not financed) at the prime rate reported in The Wall Street Journal) for capital
expenditures made by Landlord that are reasonably intended to result in a net
decrease in Operating Expenses; (7) salaries, wages, benefits and other expenses
of Building personnel at or below the level of property manager (except as
excluded below); (8) legal fees (except as excluded below), administrative
expenses, and accounting, architectural and other professional fees and
expenses; (9) costs of any service not provided to the Building on the Lease
Commencement Date but thereafter provided by Landlord in the prudent management
of the Building; (10) charges for concierge, security, janitorial, char and
cleaning services and supplies furnished to the Building (except that costs of
furnishing char and janitorial service to any tenanted space in the Building
shall be excluded to the extent any such tenant is furnishing its own char and
janitorial service to its premises); (11) costs associated with the provision or
operation of any common facilities, including (without limitation) parking
areas, landscaped areas, access roads, and the Building's loading dock, if any;
and (12) any other reasonable expense incurred by Landlord in maintaining,
repairing or operating the Building.
Any provision herein to the contrary notwithstanding, Operating
Expenses shall not include the following:
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<PAGE> 9
(a) the cost of any work performed (such as preparing a tenant's space for
occupancy, including painting and decorating) or services provided
(such as separately metered electricity) for any tenant (including
Tenant) at such tenant's cost, or provided by Landlord without charge
as an inducement to lease (such as free rent or improvement
allowances);
(b) the cost of installing, operating and maintaining any specialty
service, such as an observatory, broadcasting facility, luncheon club,
retail store, sundry shop, newsstand, or concession;
(c) the cost of correcting defects in construction, repair and replacement
resulting from inferior or deficient workmanship, materials, or
equipment in the initial construction or equipping of the Building or
for which Landlord is reimbursed by insurance;
(d) salaries, wages, benefits and other expenses of Landlord's officers
and partners and its headquarters staff;
(e) the cost of any work performed or service provided for any tenant of
the Building (other than Tenant) to a materially greater extent or in
a materially more favorable manner than that furnished generally to
the other tenants and occupants (such as electricity and cleaning
services provided to retail tenants);
(f) the cost of any work performed or service provided (such as
electricity) for any facility other than the Building (such as a
garage) for which fees are charged;
(g) the cost of any items for which Landlord is reimbursed by insurance
proceeds, condemnation awards, or otherwise, or for which Landlord is
actually reimbursed or is entitled to be reimbursed by a tenant of the
Building;
(h) the cost of any additions to the Building, or Operating Expenses
generated by such additions, constructed after the Lease Commencement
Date;
(i) the cost of any additions, changes, or replacements which under
generally accepted accounting principles are properly classified as
capital expenditures, except to the extent provided in clause (6)
above;
(j) the cost of any repair made in response to any fire or casualty damage
(except for the amount of any commercially reasonable "deductible"
under Landlord's property insurance) or any condemnation;
(k) insurance premiums to the extent any tenant causes Landlord's existing
insurance premiums to increase or requires Landlord to purchase
additional insurance;
(l) interest and principal payments on any debt, depreciation, and rental
under any ground lease or other underlying lease;
(m) any real estate brokerage commissions or other costs incurred in
procuring tenants, or any fee in lieu of commission;
(n) any advertising and marketing expenses, and architectural fees for
tenant space;
- 8 -
<PAGE> 10
(o) any costs representing an amount paid to an entity related to or
affiliated with Landlord to the extent in excess of the amount which
would have been paid in the absence of such a relationship;
(p) payments for rented equipment, the cost of which equipment would
constitute a capital expenditure if the equipment were purchased
(unless such equipment, if purchased, would be comprehended by clause
(6) above);
(q) any expenses for repairs or maintenance which are covered by
warranties, guaranties or service contracts (excluding any mandatory
deductibles);
(r) legal expenses arising out of the construction, sale or financing of
the Building, or the enforcement of the provisions of any tenant's
lease;
(s) insurance premiums to the extent of any refunds thereof;
(t) costs necessitated by or resulting from the gross negligence of
Landlord, its agents, employees or independent contractors;
(u) home office accounting fee allocations;
(v) amortization, except as provided in clause (6) above;
(w) costs with respect to a sale, financing or refinancing;
(x) bad debt loss, rent loss or reserves for bad debt loss or rent loss
(but not the premiums for rent loss insurance);
(y) costs associated with the operation of the business entity of
Landlord, including partnership audit, business entity accounting, and
business entity legal matters;
(z) costs incurred by Landlord in connection with bringing the Building
into compliance with existing requirements of applicable codes and
laws;
(aa) costs arising from the presence or removal of Hazardous Materials from
the Premises, the Building, or the Land;
(bb) fines and penalties associated with Landlord making late payments;
(cc) the cost of maintaining management, engineering and/or maintenance
offices in the Building;
(dd) any personal property tax payable with respect to Landlord's property
located at the Building; and
(ee) wages, salaries and other compensation or benefits paid to any
off-site employees of Landlord or its managing agent (other than
Landlord's reasonable allocation, based on time spent in connection
with the Building, of wages, salaries, compensation and benefits paid
to such off-site employees who are assigned part-time to the
operation, management, maintenance or repair of the Building).
- 9 -
<PAGE> 11
In addition, Landlord agrees to limit the amount included in Operating Expenses
for the management fee for the Building to 3% of the annual gross income from
the base rent paid for the Building. In the event Landlord fails to bill Tenant
for an item of Expenses within six (6) months following the later of (i)
Landlord's delivery of the Reconciliation Statement (as hereinafter defined) for
the calendar year in which such Expense was incurred or (ii) the date on which
Landlord becomes aware that the Expense was incurred and the exact amount
thereof, then Landlord shall forfeit the right to bill Tenant for such Expense
item. In the event a single expenditure pays for the provision of a good or
service to both the Building and any other building owned by Landlord, then
Expenses of the Building shall include only the portion of such payment that is
equitably allocable to the Building, as reasonably determined by Landlord.
(b) "Real Estate Taxes" shall mean and include (i) all real property
taxes, including general and special assessments, if any, which are imposed upon
Landlord or assessed against the Building; (ii) any other present or future
taxes or governmental charges which are imposed upon Landlord, or assessed
against the Building and/or the Land, including, but not limited to, any tax
levied on or measured by the rents payable by tenants in the Building which are
in the nature of, or in substitution for, real property taxes; and (iii) all
taxes which are imposed upon Landlord, and which are assessed against the value
of any improvements to the Premises made by Tenant or any machinery, equipment,
fixtures or other personal property of Tenant used therein. In no event shall
"Real Estate Taxes" include (A) income or net profit taxes imposed upon
Landlord, except to the extent such taxes fall within clause (ii) of the above
definition of Real Estate Taxes, (B) the amount of any special taxes or special
assessments actually paid by Landlord in any calendar year in excess of the
minimum installment of special taxes or special assessments required to be paid
by Landlord during such calendar year (it being agreed that Landlord shall elect
the longest period of time allowed by the authority imposing the tax or
assessment in which to pay installments of special taxes or special assessments
that are to be prorated over several years), or (C) franchise, stock,
inheritance, gift, corporation, excise, transfer, recordation or estate taxes.
Upon receiving a notice of assessment or a real estate tax bill with respect to
the Building and/or the Land, Landlord will furnish Tenant with a copy thereof.
Landlord shall make a determination whether or not to challenge or appeal such
assessment based on Landlord's reasonable judgment of which course is in the
best interest of the Building. Landlord shall inform Tenant of such
determination, and shall make available appropriate personnel to discuss with
Tenant the reasons underlying such determination. In the event Landlord
determines not to challenge or appeal such assessment (or, having undertaken to
appeal or challenge such an assessment, does not pursue the appeal or challenge
with due diligence and continuity), Landlord agrees that Tenant may appeal or
challenge such assessment in Landlord's place and stead and that Landlord will
join in and cooperate with Tenant in prosecuting such appeal or challenge;
provided, however, that (i) such appeal or challenge shall be undertaken at
Tenant's sole cost and at no expense to Landlord (except that, if Tenant's
appeal or challenge is successful, then Tenant may recover its costs out of the
refund or reduction of Real Estate Taxes achieved by Tenant), and (ii) in the
event the assessment is increased as a result of Tenant's appeal or challenge,
then for the remainder of the Lease Term Tenant shall pay its proportionate
share of the entire incremental tax resulting from such increase.
4.3 Tenant shall pay to Landlord, as additional rent for the Premises, its
proportionate share of the Expenses incurred by Landlord in the operation of the
Building during any calendar year falling entirely or partly within the Lease
Term, but the Expenses for any calendar year during the Lease Term shall be
apportioned so that Tenant shall pay only that portion of such Expenses for such
year as fall within the Lease Term. This provision shall survive the expiration
or earlier termination of this Lease.
4.4 If the average occupancy rate for the Building during any calendar year
is less than ninety-five percent (95%), or if any office tenant is separately
paying for electricity or janitorial services furnished to its premises, then
Expenses for such calendar year shall be deemed to include all additional
expenses with respect to those Expenses that vary in accordance with the
occupancy of the Building, as reasonably estimated by
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<PAGE> 12
Landlord, which would have been incurred during such calendar year if the
occupancy rate for the Building had been ninety-five percent (95%) and if
Landlord paid for electricity and janitorial services furnished to such
premises.
4.5 Commencing on the Lease Commencement Date and on the first day of each
month thereafter, Tenant shall make estimated monthly payments to Landlord on
account of the Expenses that are reasonably expected to be incurred during each
calendar year falling entirely or partly within the Lease Term. The amount of
such monthly payments shall be determined as follows: commencing with the Lease
Commencement Date and at the beginning of each calendar year thereafter,
Landlord shall submit to Tenant a statement setting forth Landlord's reasonable
estimate of the Expenses that are expected to be incurred during such calendar
year and Tenant's proportionate share thereof. Provided that Tenant receives
such statement at least thirty (30) days in advance, Tenant shall pay to
Landlord on the first day of each month following receipt of such statement
during such calendar year an amount equal to (A) the excess of (i) Tenant's
proportionate share of the anticipated Expenses for the full calendar year (or
the portion of such calendar year that falls within the Lease Term) over (ii)
the monthly payments made by Tenant (on the basis of the estimate in effect
during the preceding calendar year) prior to the commencement of payments made
on the basis of Landlord's estimate for the current calendar year, multiplied by
(B) a fraction, the numerator of which is one (1) and the denominator of which
is the number of months during such calendar year which fall within the Lease
Term and follow the date of the foregoing statement. Within approximately ninety
(90) days after the expiration of each calendar year, Landlord shall submit to
Tenant a statement certified by Landlord (the "Reconciliation Statement"),
showing (i) the Expenses actually incurred during the preceding calendar year
and Tenant's proportionate share thereof, and (ii) the aggregate amount of the
estimated payments made by Tenant on account thereof. If the aggregate amount of
such estimated payments exceeds Tenant's actual liability for such Expenses,
then Landlord shall credit the net overpayment against the next monthly
installment of additional rent coming due under this Lease (or if the Lease Term
has ended, shall pay such net overpayment to Tenant within thirty (30) days
after providing such Reconciliation Statement to Tenant). If Tenant's actual
liability for such Expenses exceeds the estimated payments made by Tenant on
account thereof, then Tenant shall pay to Landlord the total amount of such
deficiency within thirty (30) days after its receipt of the Reconciliation
Statement from Landlord. In the event Landlord has failed to deliver a
Reconciliation Statement to Tenant within ninety (90) days after the expiration
of a calendar year, Tenant may deliver to Landlord a written demand that the
Reconciliation Statement be delivered within sixty (60) days following the date
of delivery of Tenant's demand notice, and if Landlord fails to deliver the
Reconciliation Statement to Tenant within sixty (60) days after the date of
delivery of Tenant's demand notice, then Landlord shall forfeit the right to
bill Tenant for any amount on account of Expenses incurred during such calendar
year in excess of the estimated payments made by Tenant during such calendar
year (but Tenant shall not forfeit the right to be reimbursed for any
overpayment if its estimated payments exceeded the actual Expenses). The
provisions of this paragraph shall survive the expiration or earlier termination
of this Lease.
4.6 Tenant or its designee shall have the right, during business hours and
upon reasonable prior notice, from time to time to inspect and make copies of
Landlord's books and records relating to Expenses, and/or to have such books and
records audited at Tenant's expense by an independent certified public
accountant designated by Tenant, the fees of whom shall not be determined on a
contingent basis, except that any audit that discloses that annual Expenses have
been overstated by more than five percent (5%) shall be at Landlord's expense.
Any discrepancy shall be corrected by a payment of any shortfall to Landlord by
Tenant, or a refund of any overpayment to Tenant by Landlord, within thirty (30)
days after the applicable audit. In the event Tenant does not contest a
statement of Expenses within six (6) months after the date it receives a
Reconciliation Statement (and provided Landlord has cooperated with Tenant
undertaking an audit of Landlord's books and records, if so requested by
Tenant), such Reconciliation Statement shall become binding and conclusive upon
each party, unless any audit performed by Tenant in accordance with this Section
4.6 reflects an overpayment
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<PAGE> 13
by Tenant of five percent (5%) or more with respect to any particular category
of expense, in which event Tenant shall be permitted to audit, in accordance
with all of the other terms of this Section 4.6, Landlord's books and records
for the three (3) years prior to the year for which such overpayment was made
with respect to each particular category of expense for which an overpayment was
made.
4.7 For purposes of determining Tenant's proportionate share of the annual
Expenses, the Controllable Expenses (as defined below) for each Lease Year after
the first (1st) Lease Year shall not exceed an amount that is the product of one
hundred ten percent (110%) multiplied by the Controllable Expenses incurred
during the immediately preceding Lease Year. "Controllable Expenses" shall be
all Operating Expenses other than utility charges, insurance premiums, costs
resulting from an event of Force Majeure (as defined in Section 30.18 below),
and costs of extraordinary repairs to the Building required in Landlord's
commercially reasonable judgment, all of which charges, premiums and costs in
any event shall be commercially reasonable.
ARTICLE V
SECURITY DEPOSIT
5.1 (a) As security for the faithful performance by Tenant of all
covenants, conditions and agreements of this Lease, Tenant shall deliver, on or
before the Lease Commencement Date, to and for the benefit of Landlord, a letter
of credit in the amount of Eight Hundred Thousand and 00/100 Dollars
($800,000.00) (the "Letter of Credit") to be held by Landlord for the first five
(5) Lease Years. The amount of the Letter of Credit automatically shall be
reduced on the first (1st) day of each of the second (2nd), third (3rd), fourth
(4th) and fifth (5th) Lease Years (each, a "Reduction Date") by an amount equal
to 85% of the amount of the Letter of Credit required for the preceding Lease
Year, as shown below:
<TABLE>
<CAPTION>
Lease Year Amount of Letter of Credit
---------- --------------------------
<S> <C>
1 $800,000.00
2 $680,000.00
3 $578,000.00
4 $491,300.00
5 $417,605.00
</TABLE>
The Letter of Credit shall be unconditional, irrevocable, transferable, payable
to Landlord on sight in partial or full draws, and otherwise in form and content
and issued by a financial institution reasonably acceptable to Landlord.
Landlord hereby approves the form of letter of credit attached hereto as Exhibit
G. The form of the Letter of Credit shall be substantially on the form attached
hereto as Exhibit G or on such approved financial institution's standard form,
with all commercially reasonable modifications thereto requested by Landlord.
The Letter of Credit shall contain an "evergreen" provision which provides that
the Letter of Credit will be automatically renewed on an annual basis unless the
issuer delivers thirty (30) days prior written notice of cancellation to
Landlord and Tenant, such that the Letter of Credit remains in existence through
the last day of the fifth (5th) Lease Year. Landlord may draw upon the Letter of
Credit as necessary to compensate Landlord for any Event of Default under this
Lease on the part of Tenant, or if the issuer notifies Landlord that it does not
intend to renew the Letter of Credit (so that the Letter of Credit will not
remain in existence through the last day of the fifth (5th) Lease Year).
(b) In the Event of a sale or transfer of Landlord's estate or
interest in the Land and Building, Landlord shall transfer the Letter of Credit
to the vendee or transferee as the new landlord under this Lease, and to the
extent the Letter of Credit is so transferred, Landlord shall be considered
released by Tenant from all liability for the return of the Letter of Credit. No
mortgagee or purchaser of any or all of the Building at any
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<PAGE> 14
foreclosure proceeding brought under the provisions of any mortgage shall
(regardless of whether the Lease is at the time in question subordinated to the
lien of any mortgage) be liable to Tenant or any other person for the return of
any Letter of Credit, unless Landlord has actually delivered the Letter of
Credit to such mortgagee or purchaser. If requested by any such mortgagee or
purchaser, Tenant shall obtain an amendment to the Letter of Credit which names
such mortgagee or purchaser as the beneficiary thereof in lieu of Landlord, at
no cost or expense to Tenant.
ARTICLE VI
USE OF PREMISES
6.1 Tenant shall use and occupy the Premises solely for general office
purposes and uses incidental to general office use, including without
limitation, conference and training facilities and a fitness facility for
Tenant's employees, and other uses to the extent not prohibited under applicable
laws and necessary for the conduct of the business in which Tenant is engaged as
of the date of this Lease, and for no other use or purpose. Subject to
Landlord's obligations under Section 6.4 hereof, Tenant shall not use or occupy
the Premises for any unlawful purpose or in any manner that will constitute
waste, nuisance or unreasonable annoyance to Landlord or other occupants of the
Building. Subject to Landlord's obligations under Section 6.4 hereof, Tenant's
use of the Premises shall also comply with all present and future laws,
ordinances (including zoning ordinances and the land use requirements),
regulations, and orders of the County of Fairfax, Commonwealth of Virginia, and
any other public or quasi-public authority having jurisdiction over the
Premises, concerning the use, occupancy and condition of the Premises and all
machinery, equipment and furnishings therein (together referred to herein as the
"Legal Requirements"). Landlord hereby warrants to Tenant that the Building and
all work performed by Landlord in the Premises, when completed, will comply in
all material respects with all applicable Legal Requirements, including without
limitation, the Americans With Disabilities Act of 1990.
6.2 The party performing the Leasehold Work pursuant to Exhibit B hereto
shall obtain the initial non-residential use permit and any other similar
governmental approvals which may be required for Tenant's occupancy of the
Premises. It is expressly understood that if any present or future Legal
Requirements require any other permit(s) for the Premises due to Tenant's
particular use thereof (as distinct from general office use), or Tenant's
improvements or future alterations thereto, that Tenant will obtain such
permit(s) at Tenant's own expense. Further, subject to Landlord's obligations
under Section 6.4 hereof, Tenant will comply with all Legal Requirements which
impose on Landlord or Tenant a duty relating to or arising as a result of
Tenant's use or occupancy of the Premises. Tenant shall promptly pay all fines,
penalties and damages that may arise out of or be imposed on Landlord or Tenant
because of Tenant's failure to comply with the provisions of this Section.
Landlord shall promptly pay all fines, penalties and damages that may arise out
of or be imposed on Landlord or Tenant because of Landlord's failure to comply
with the provisions of this Section, and any such fines, penalties or damages
shall not be Expenses hereunder.
6.3 Tenant shall pay any business, rent or other taxes that are now or
hereafter levied upon Tenant's use or occupancy of the Premises, the conduct of
Tenant's business at the Premises, or Tenant's equipment, fixtures or personal
property. In the event that any such taxes are enacted, changed, or altered so
that any of such taxes are levied against Landlord, or the mode of collection of
such taxes is changed so that Landlord is responsible for collection or payment
of such taxes, Tenant shall pay any and all such taxes to Landlord upon written
demand from Landlord.
6.4 Landlord shall construct the base Building in compliance with all
applicable laws, building codes and governmental and quasi-governmental
regulations and ordinances in effect as of the date hereof, and in a manner that
accommodates all technological capabilities necessary for the Building systems
to operate without interruption as a result of the transition from calendar year
1999 to calendar year 2000. Notwithstanding anything to the contrary contained
in this Lease, it is agreed that Landlord shall be responsible for complying
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with all present and future Legal Requirements with respect to (i) those
elements and components of the base-building structure and systems that are
situated outside the perimeter of the Premises or are within vertical
penetrations running through the Premises (and Tenant shall be responsible for
complying with any present or future Legal Requirements with respect to such
elements and components of the base-building structure and systems that are
situated within the perimeter of the Premises, but not within vertical
penetrations running through the Premises) and (ii) the common areas of the
Building, unless such Legal Requirements are imposed because of Tenant's
particular use of the Premises (as opposed to office use generally) or any
improvements constructed by Tenant in the Premises.
6.5 Tenant covenants not to bring any Hazardous Materials onto the Land,
the Building or the Premises. Notwithstanding the foregoing, Tenant or its
agents may use and store within the Premises reasonable quantities of customary
office and cleaning supplies; provided such items are stored, used and disposed
of in accordance with applicable Legal Requirements. As used in this Lease,
"Hazardous Materials" shall mean (a) "hazardous wastes," as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
(b) "hazardous substances," as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time,
(c) "toxic substances," as defined by the Toxic Substances Control Act, as
amended from time to time, (d) "hazardous materials," as defined by the
Hazardous Materials Transportation Act, as amended from time to time, (e) oil or
other petroleum products, and (f) any substance whose presence in Landlord's
commercially reasonable judgment could be detrimental to the Building or
hazardous to health or the environment. Tenant shall indemnify and hold Landlord
harmless from any and all claims, damages, fines, judgments, penalties, costs,
liabilities or losses arising during or after the Lease Term and arising from
Tenant's breach of this Section 6.5.
ARTICLE VII
ASSIGNMENT AND SUBLETTING
7.1 Tenant shall not have the right to assign, transfer, mortgage or
otherwise encumber this Lease or its interest herein without first complying
with the provisions of subsections (a) and (b) of this Section 7.1.
(a) No assignment, transfer, mortgage or other encumbrance of this
Lease shall be effected unless Tenant obtains the prior written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed by Landlord; provided, however, that Landlord may withhold its consent
to any proposed assignment, transfer, mortgage or other encumbrance of this
Lease, among other reasons, if (i) an Event of Default then exists under this
Lease, or (ii) Landlord reasonably determines that the nature of the activities
to be conducted by the proposed assignee would generally be perceived as
inappropriate for a first-class office building, or would physically damage the
Building or the Premises. No assignment or transfer of this Lease or the right
of occupancy hereunder may be effectuated by operation of law or otherwise
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed by Landlord. Any attempted
assignment or transfer by Tenant of this Lease or its interest herein without
Landlord's consent (if Landlord's consent thereto is required) shall, at the
option of Landlord, terminate this Lease; however, in the event of such
termination, Tenant shall remain liable for all rent and other sums due under
this Lease and all damages suffered by Landlord on account of such breach by
Tenant. In the event a proposed partial assignment of this Lease will not cause
more than fifty percent (50%) of the rentable area of the Premises to be subject
to any sublease or assignment, then Tenant may enter into such partial
assignment without Landlord's consent, but upon at least ten (10) business days'
prior written notice to Landlord, if (but only if) Tenant remains liable for the
payment of rent and performance of the other obligations of the tenant under
this Lease.
(b) Landlord, within fifteen (15) business days after receipt of a
written request from Tenant accompanied by a copy of a letter of intent or other
materials reflecting the parties to and proposed use of the
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Premises, shall approve or disapprove each proposed assignment or other transfer
or encumbrance. If Landlord fails to deliver to Tenant, within such fifteen
(15)-business day period, a written notice of such approval or disapproval
(along with a reasonably detailed explanation of the reasons for any
disapproval), then Landlord shall be deemed to have approved the assignment or
transfer or other encumbrance.
7.2 Tenant shall not have the right to sublease (which term, as used
herein, shall include any type of subrental arrangement and any type of license
to occupy) all or any part of the Premises without first complying with the
provisions of subsections (a) and (b) of this Section 7.2.
(a) No sublease of all or any portion of the Premises shall be
effected unless Tenant obtains the prior written consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed by Landlord;
provided, however, that Landlord may withhold its consent to any proposed
sublease, among other reasons, if (i) an Event of Default then exists under this
Lease, or (ii) Landlord reasonably determines that the nature of the activities
to be conducted by the proposed subtenant would generally be perceived as
inappropriate for a first-class office building, or would physically damage the
Building or the Premises.
(b) Landlord, within fifteen (15) business days after receipt of
written request from Tenant accompanied by a copy of a letter of intent or other
materials reflecting the parties to and proposed use of the Premises, shall
approve or disapprove each proposed subletting. If Landlord fails to deliver to
Tenant, within such fifteen (15)-business day period, a written notice of such
approval or disapproval (along with a reasonably detailed explanation of the
reasons for any disapproval), then Landlord shall be deemed to have approved the
proposed subletting.
7.3 The consent by Landlord to any assignment or subletting shall not be
construed as a waiver or release of Tenant from any and all liability for the
performance of all covenants and obligations to be performed by Tenant under
this Lease, nor shall the collection or acceptance of rent from any assignee,
transferee or subtenant constitute a waiver or release of Tenant from any of its
liabilities or obligations under this Lease. Landlord's consent to any
assignment or subletting shall not be construed as relieving Tenant from the
obligation of complying with the provisions of Sections 7.1 or 7.2 hereof, as
applicable, with respect to any subsequent assignment or subletting. For any
period during which an Event of Default exists hereunder with respect to the
payment of base rent or additional rent, Tenant hereby assigns to Landlord the
rent due from any subtenant of Tenant and hereby authorizes each subtenant to
pay said rent directly to Landlord. Tenant further agrees to submit any and all
instruments of assignment and sublease to Landlord for Landlord's prior written
approval as to form and substance, which approval shall not be unreasonably
withheld, but which instruments, as an express condition precedent to Landlord's
prior approval, shall provide that (i) such sublease or assignment is subject
and subordinate to this Lease in all respects, and to any amendments,
modifications, renewals, extensions or expansions hereof, (ii) Tenant shall
remain primarily liable as Tenant hereunder, (iii) such assignee or sublessee
shall conduct a business in the Premises which is a permitted use pursuant to
Article VI of this Lease, (iv) in the case of an assignment, such assignee is
bound by the terms and conditions of this Lease and assumes all of the
obligations and liabilities of Tenant hereunder, (v) in the case of a sublease,
(A) Landlord is not, and will not become, a party to such sublease, and (B)
Landlord's consent to such sublease does not create a contractual relationship
between Landlord and such sublessee, nor does it create any liability of
Landlord to such sublessee, (vi) Landlord's consent to such assignment or
sublease does not affect the obligations of Landlord or Tenant under this Lease,
and (vii) Landlord's consent to such assignment or sublease shall not be
construed to mean that Landlord has approved any plans or specifications for
renovations to the Premises intended by such assignee or sublessee and that any
such work to the Premises must be conducted in accordance with the terms of this
Lease. Any such instrument of assignment or sublease not approved by Landlord as
aforesaid shall be null and void and of no force or effect. Any such instrument
of assignment or sublease submitted to Landlord for approval and not approved or
disapproved in writing by Landlord within ten (10) business days after
submission shall be deemed approved by Landlord for all purposes under this
Lease;
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provided, however, that in the event Tenant delivers to Landlord any
instrument of assignment or sublease concurrently with the delivery to Landlord
of the information required pursuant to Section 7.1(b) or 7.2(b), as applicable,
then Landlord shall approve or disapprove both the proposed subtenant or
assignee and the form and substance of the instrument evidencing the same within
the fifteen (15)-business day period set forth in Section 7.1(b) or 7.2(b), as
applicable.
7.4 If this Lease is or shall be assigned by Landlord to the holder of a
mortgage or deed of trust against the Building as additional security for such
loan, the consent of such holder (if required by the terms of the applicable
loan documents) shall be required in addition to any consents by Landlord under
the terms of this Article VII.
7.5 (a) Notwithstanding the above restrictions on subletting and
assignments, and provided that no Event of Default then exists under this Lease,
Tenant shall have the right, upon not less than five (5) business days prior
written notice to Landlord but without Landlord's prior written consent, to
assign this Lease or to sublet all or any part of the Premises to an Affiliate
of Tenant (as hereinafter described) or a Successor Entity (as hereinafter
defined), provided (i) that the conditions set forth in Section 7.3(i) - (vii)
are fully satisfied, as determined by Landlord in its reasonable judgment, (ii)
that the terms of the sublease or assignment do not conflict with the terms of
this Lease and (iii) if Tenant will cease to exist following the merger,
consolidation or other business reorganization resulting in such assignment,
that such assignee or sublessee has a creditworthiness (reasonably determined on
the basis of assets and capitalization) and net worth (which shall be reasonably
determined using generally accepted accounting principles consistently applied
and using the most recent financial statements) reasonably acceptable to
Landlord.
(b) For purposes of this Section 7.5, an "Affiliate of Tenant" shall
mean any corporation, association, trust, partnership or other business entity
(i) which Controls (as herein defined) Tenant or (ii) which is under the Control
of Tenant through stock ownership or otherwise or (iii) which is under common
Control with Tenant. The terms "Control" or "Controls" as used in this Section
7.5 shall mean the power to directly or indirectly influence the direction,
management or policies of Tenant or such other entity.
(c) For purposes of this Section 7.5, a "Successor Entity" shall mean
a corporation, association, trust, partnership or other business entity into or
with which Tenant shall be merged or consolidated, or to which substantially all
of the assets of Tenant may be transferred or sold.
7.6 Tenant shall use reasonable efforts to notify Landlord in writing of
any intention by Tenant to market the Premises or any portion thereof for
assignment or sublease, and shall furnish to Landlord such information as
Landlord may reasonably request with respect to the economic terms of the
assignment or sublease transaction being sought by Tenant and the actions Tenant
is taking to market the Premises.
7.7 [Intentionally deleted.]
ARTICLE VIII
MAINTENANCE AND REPAIRS
8.1 Landlord shall keep, maintain, repair and replace as appropriate, the
foundation, roof, exterior walls, structural portions (including columns within
the Premises and the vertical sprinkler loop through the Building), and glass
and windows of the Building (specifically excluding the interior walls, doors,
partitions, locks, and door jambs in the Premises), as well as all mechanical,
plumbing, heating, air conditioning, sprinkler and electrical systems and
utility service lines therein, the plumbing system to and from the Premises and
core area restrooms within the Premises, and the driveways, parking areas and
grounds adjacent to the Building in good condition and repair, and the costs
incurred by Landlord in maintaining and repairing such items shall be
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included in the Expenses of the Building (unless the cost or expense of any such
repair or maintenance is excluded from Operating Expenses of the Building under
Section 4.2(a) above).
8.2 Tenant will keep and maintain the Premises and all fixtures and
equipment located in the Premises (specifically including the interior walls,
doors, partitions, locks, door jambs, windows and glass in the Premises, but
excluding those portions of the Premises to be maintained by Landlord pursuant
to Section 8.1 above) in clean, safe and sanitary condition, will take good care
thereof and will maintain and make all required repairs thereto, and will suffer
no waste or injury thereto. At the expiration or other termination of the Lease
Term, Tenant shall surrender the Premises, broom clean, in substantially the
same order and condition which they are in on the Lease Commencement Date,
ordinary wear and tear, damage by the elements, and casualty damage excepted.
8.3 Subject to the provisions of Section 12.4(b) below, all injury,
breakage and damage to the Premises or to any other part of the Building caused
by any negligent act or omission or willful misconduct of Tenant, or of any
agent, employee, subtenant, contractor, customer or invitee of Tenant, shall be
repaired by and at the sole expense of Tenant, except that Landlord shall have
the right, at its option, after Tenant's failure to cure (or commence to cure,
where applicable) within five (5) business days after notice to Tenant of such
injury, breakage or damage, to make such repairs and to charge Tenant for all
reasonable costs and expenses incurred in connection therewith as additional
rent hereunder. The foregoing notwithstanding, should an emergency or similar
situation occur and delay would cause or is likely to cause preventable injury
to persons or property, Landlord may elect to act without notice to Tenant.
ARTICLE IX
ALTERATIONS
9.1 Landlord shall construct the Building and the Leasehold Work in
accordance with the terms of Exhibit B attached hereto. It is understood and
agreed that Landlord will not make, and is under no obligation to make, any
structural or other alterations, decorations, additions or improvements in or to
the Premises other than as set forth in Exhibit B.
9.2 Tenant will not make or permit anyone to make any alterations,
additions or improvements (hereinafter referred to collectively as
"improvements"), structural or otherwise, in or to the Premises without the
prior written consent of Landlord. Notwithstanding the foregoing, Landlord's
consent shall not be required with respect to improvements that are
nonstructural in nature and do not affect any of the base-building systems.
Landlord's consent shall not be unreasonably withheld, conditioned or delayed
with respect to any proposed nonstructural improvement for which Landlord's
consent is required hereunder. In the event Landlord fails to provide written
notice to Tenant approving or disapproving (with a reasonably detailed
explanation of the reasons for any disapproval) a request for its consent to an
improvement within ten (10) business days following submission of such request,
then Landlord's consent shall be deemed granted. When granting its consent,
Landlord may impose any conditions it reasonably deems appropriate, including,
without limitation, the approval by Landlord of plans and specifications, the
approval by Landlord of the contractor or other persons who will perform the
work, Tenant's obtaining all necessary permits and approvals for such work, and
Tenant's obtaining, and providing Landlord with certificates of insurance
evidencing, reasonably appropriate levels and types of insurance coverage. All
improvements permitted by Landlord (or allowed hereunder without Landlord's
approval) must conform to all applicable requirements of the insurers of the
Building ("Insurance Requirements") and to all applicable Legal Requirements.
Landlord's review and approval of any such plans and specifications and consent
to the performance of work described therein shall not be deemed an agreement by
Landlord that such plans, specifications and work conform with all applicable
Legal Requirements and Insurance Requirements nor be deemed a waiver of Tenant's
obligations under this Lease with respect to Legal Requirements and Insurance
Requirements nor impose any liability or obligation upon Landlord with respect
to
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the completeness, design sufficiency or compliance with Legal Requirements or
Insurance Requirements of such plans, specifications and work. Upon completion
of any improvements requiring Landlord's approval, Tenant shall provide Landlord
with final release of lien forms executed by Tenant's general contractor. If,
notwithstanding the foregoing, any mechanic's or materialmen's lien is filed
against the Premises, the Building and/or the Land, for work claimed to have
been done for, or materials claimed to have been furnished to, the Premises on
Tenant's account (other than for Landlord's Work), such lien shall be discharged
by Tenant within twenty (20) days after Tenant has notice thereof, at Tenant's
sole cost and expense, by the payment thereof or by the filing of a surety bond
in form and substance acceptable to Landlord. If Tenant shall fail to discharge
any such mechanic's or materialmen's lien, Landlord may, at its option,
discharge such lien and treat the cost thereof (including reasonable attorneys'
fees incurred in connection therewith) as additional rent payable with the next
monthly installment of base rent falling due. It is understood and agreed that
any improvements to the Premises (other than Landlord's Work) shall be conducted
on behalf of Tenant, and that Tenant shall be fully responsible therefor. It is
further understood and agreed that in the event Landlord shall give its written
consent to the making of any improvements to the Premises, such written consent
shall not be deemed to be an agreement or consent by Landlord to subject its
interest in the Premises, the Building or the Land to any mechanic's or
materialmen's liens which may be filed in connection therewith. Upon completion
of any structural improvements by Tenant, Tenant shall provide Landlord with
accurate "as-built" plans showing the new work in a "CADD" format; in addition,
if Tenant has made any improvements (structural or otherwise) in the Premises
during the course of any calendar year, then Tenant shall provide Landlord with
such "as-built" plans within thirty (30) days following the end of such calendar
year.
9.3 Tenant shall indemnify and hold Landlord harmless from and against any
and all expenses, liens, claims, liabilities and damages based on or arising,
directly or indirectly, by reason of the making of any improvements to the
Premises by Tenant or its employees, agents or contractors. If any improvements
are made without the prior written consent of Landlord (if such consent is
required hereunder), Landlord shall have the right to remove and correct such
improvements and restore the Premises to their condition immediately prior
thereto, and Tenant shall be liable for all reasonable expenses incurred by
Landlord in connection therewith. All improvements affixed to the Premises or
the Building made by either party shall remain upon and be surrendered with the
Premises as a part thereof at the end of the Lease Term, except that (i) Tenant
shall have the right to remove, prior to the expiration of the Lease Term, all
furniture, furnishings, fixtures, trade fixtures and equipment installed in the
Premises solely at the expense of Tenant, and (ii) Tenant shall be required to
remove all improvements to the Premises which Landlord designates in writing for
removal at the time Landlord approves installation of such improvement (provided
that Landlord shall have the right to designate for removal any improvements
installed pursuant to Exhibit B hereto only if they are of a nature that is
materially different from that typically included in an office build-out, and
provided further that SCIF space, if any, installed pursuant to Exhibit B
comprising not more than 10,000 rentable square feet in the aggregate shall not
be subject to Landlord's right to require removal). All damage and injury to the
Premises or the Building caused by such removal shall be repaired by Tenant, at
Tenant's sole expense. If any property of Tenant is not removed by Tenant prior
to the expiration or termination of this Lease, the same shall become the
property of Landlord and shall be surrendered with the Premises as a part
thereof.
ARTICLE X
SIGNS AND FURNISHINGS
10.1 Throughout the Lease Term and so long as Tenant is leasing and
occupying at least one (1) full floor of rentable area in the Building, and
subject to any applicable Legal Requirements and requirements of the Reston
Architectural Board of Review (collectively, "Signage Requirements"), Tenant
shall have the right (a) to install and maintain, at Tenant's sole expense,
exclusive building signage identifying Tenant on the upper portion of the
Building facade, which signage shall be sufficiently large and prominently
placed so as to make it
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reasonably visible from the Dulles Airport access road and to pedestrian and
vehicular traffic in the immediate vicinity of the Building, it being understood
and agreed that Landlord shall not permit any other signage to be located
anywhere on the Building facade, except as otherwise expressly provided pursuant
to Section 10.3 below, and (b) to have installed and maintained, at Landlord's
expense (and passed through to the tenants as an Operating Expense to the extent
permitted pursuant to Section 4.2(a) above, such that Tenant will pay its
proportionate share of the costs thereof for any period during the Lease Term in
which Tenant is not the sole tenant of the Building and the entire costs thereof
for any period during the Lease Term in which Tenant is the sole tenant of the
Building (and the monument sign so reflects the same)), one (1) non-exclusive
monument sign, in the maximum size permitted pursuant to applicable Signage
Requirements, to be located beside the vehicle accessway leading to the front
entrance of the Building. The size, position, materials, color, style and manner
of installation of such signage shall be subject to Landlord's prior written
approval, which shall not be unreasonably withheld, conditioned or delayed. In
the event Landlord fails to provide written notice to Tenant approving or
disapproving (with a reasonably detailed explanation of the reasons for any
disapproval) a written request for its consent to Tenant's proposed signage
within ten (10) business days following submission of such request, then
Landlord's consent shall be deemed granted. Landlord shall use good faith
efforts to cooperate with and assist Tenant in obtaining the necessary
governmental, quasi-governmental and Reston Architectural Board of Review
approvals for the signage permitted pursuant to this Section 10.1. No other
sign, advertisement or notice referring to Tenant shall be inscribed, painted,
affixed or otherwise displayed on any part of the exterior or the interior of
the Building (other than directional signage in the lobby and signage on the
doors leading into the Premises and in the interior of the Premises). All of
Tenant's signage that is approved by Landlord, other than the non-exclusive
monument sign permitted pursuant to clause (b) above, shall be installed, and
removed at the expiration or earlier termination of the Lease Term, and Tenant
shall repair any damage to the Building resulting therefrom, at Tenant's cost
and expense. If any sign, advertisement or notice required to be approved by
Landlord hereunder is exhibited or installed by Tenant prior to receiving such
approval, Landlord shall have the right to remove the same at Tenant's expense.
10.2 Throughout the Lease Term, in the event Tenant assigns this Lease or
subleases to a single subtenant a portion of the Premises consisting of more
than twenty-four thousand seven hundred fifty (24,750) rentable square feet,
then such assignee or subtenant may install and maintain signage identifying
such assignee or subtenant in place of one of Tenant's signs upon the upper
portion of the Building facade if (i) Tenant requests that a sign identifying
such assignee or subtenant be permitted in place of Tenant's sign (which shall
be removed by Tenant at Tenant's sole expense), (ii) Tenant or such assignee or
subtenant obtains all necessary approvals or permits from all applicable
governmental and quasi-governmental authorities and complies with all applicable
Legal Requirements relating thereto, (iii) such assignee or subtenant is, in
Landlord's reasonable judgment, an entity of first-class and non-controversial
character and reputation, and (iv) the size, position, materials, color, style
and manner of installation of such substitute signage are approved in advance by
Landlord (such approval not to be unreasonably withheld, conditioned or
delayed).
10.3 Provided such signage does not adversely affect Tenant's rights under
Section 10.1 and 10.2 hereof, Landlord shall be entitled to grant exterior
signage rights to any retail tenant leasing space in the Building, provided that
such signage shall be situated at or near the ground floor of the Building.
10.4 Landlord agrees to furnish, at Landlord's expense, a directory board
for installation in the lobby of the Building. Such directory board shall have
room for at least one listing per one thousand square feet of rentable area
initially leased by Tenant. Tenant may designate all individuals and groups to
be listed under its name on such directory board. Landlord shall not charge for
the initial listings on such directory board or any changes to such listings.
10.5 Tenant shall not place or install in the Premises any safes, fixtures
or other equipment which will exceed a load factor of one-hundred pounds (100
lbs.) per square foot (80 pounds live load, and 20 pounds for
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partitions). Any and all damage or injury to the Premises or the Building caused
by moving the property of Tenant into or out of the Premises, or due to the same
being in or upon the Premises, shall be repaired at the sole cost of Tenant.
Tenant agrees to remove promptly from the parking areas or sidewalks adjacent to
the Building any of Tenant's furniture, equipment or other material there
delivered or deposited.
ARTICLE XI
INSPECTION BY LANDLORD
11.1 Subject to the provisions of Section 13.2 hereof, Tenant will permit
Landlord, or its agents or representatives, to enter the Premises, without
charge therefor to Landlord and without diminution of the rent payable by
Tenant, (i) to examine, inspect and protect the Premises and the Building, (ii)
to make such alterations and/or repairs as in Landlord's reasonable judgment may
be required by law or be necessary to maintain the Building in good condition
and repair, (iii) to comply with and carry out Landlord's obligations under this
Lease, and (iv) to exhibit the same to prospective tenants (provided that
Tenant's consent, which shall not be unreasonably withheld, shall be required if
the Premises are to be exhibited to a prospective tenant more than twelve (12)
months prior to the expiration of the term of this Lease). In connection with
any such entry, Landlord shall reasonably endeavor to minimize the disruption to
Tenant's use of the Premises, shall reasonably endeavor to give Tenant at least
twenty-four (24) hours advance notice of such entry (except in the event of an
emergency) and shall reasonably endeavor to conduct such entry only during
normal working hours (except in the event of an emergency). Notwithstanding
anything to the contrary set forth in this Lease, except in the event of an
emergency, Landlord shall not be permitted access to areas previously designated
in writing by Tenant as security areas ("Secured Access Areas"), unless Landlord
or its representatives are accompanied by an agent of Tenant designated and made
available by Tenant for such purpose.
ARTICLE XII
INSURANCE
12.1 Tenant shall not conduct or permit to be conducted any activity, or
place any equipment, inventory or other materials, in or about the Premises or
the Building that will in any way increase the rate of fire insurance or other
insurance on the Building. If any increase in the rate of fire insurance or
other insurance is stated by any insurance company or by the applicable
Insurance Rating Bureau to be due solely to any activity of Tenant or the
placing of any equipment, inventory or other materials by Tenant in or about the
Premises or the Building, such statement shall be conclusive evidence that the
increase in such rate is due to such activity or equipment. In such event,
Landlord shall notify Tenant thereof and Tenant shall be liable for the amount
of such increase. Notwithstanding the foregoing, if such activity or materials
are not prohibited under this Lease, Tenant shall be permitted to continue such
activity or maintain such materials, provided that Tenant shall reimburse
Landlord for such amount upon written demand from Landlord and such sum shall be
considered additional rent payable hereunder.
12.2 Throughout the Lease Term, Landlord shall insure the Building against
loss due to fire and other casualties included in standard extended coverage
insurance policies, in an amount equal to the full replacement cost thereof;
provided, however, that if, in Landlord's reasonable judgment, full replacement
cost insurance is not available at commercially reasonable rates, then the
amount of such insurance that Landlord shall carry shall be equal to at least
ninety percent (90%) of the full replacement cost of the Building (in all events
exclusive of architectural and engineering fees, excavation, footings and
foundations). Throughout the Lease Term, Landlord shall obtain and maintain
comprehensive public liability insurance in a company or companies licensed to
do business in the Commonwealth of Virginia. Such insurance shall be in minimum
amounts of One Million Dollars ($1,000,000) per occurrence plus a general
aggregate of Two Million Dollars ($2,000,000) for injury to persons and damage
to property and shall be for a minimum term of one (1) year. Throughout the
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Lease Term, Landlord shall obtain and maintain a policy of insurance protecting
Landlord from loss of rents and other charges during the period while the
Premises are untenantable due to fire or other casualty.
12.3 Throughout the Lease Term, Tenant shall insure the contents of the
Premises, including all furnishings, trade fixtures, and equipment used or
installed in the Premises by Tenant, and any other personal property of Tenant
therein, against loss due to fire and other casualties included in standard
extended coverage insurance policies in minimum amounts not less than the full
replacement cost of Tenant's furnishings, trade fixtures, equipment and other
personal property. Throughout the Lease Term, Tenant shall obtain and maintain
comprehensive public liability insurance in a company or companies licensed to
do business in the Commonwealth of Virginia and approved by Landlord. Such
insurance shall be in minimum amounts of One Million Dollars ($1,000,000) per
occurrence plus a general aggregate of Two Million Dollars ($2,000,000) for
injury to persons and damage to property and shall be for a minimum term of one
(1) year. In addition, Tenant's public liability insurance policy shall name
Landlord and Boston Properties, Inc. (or an entity affiliated with Boston
Properties, Inc.), as managing agent of the Building, as additional insureds. If
requested by the holder of any mortgage or deed of trust against the Building,
the public liability policy referred to above shall also name such holder as an
additional insured thereunder. Receipts or certificates evidencing payment of
the premiums for such insurance shall be delivered by Tenant if requested by
Landlord. Each such policy shall contain an endorsement prohibiting cancellation
or reduction of coverage without first giving Landlord and the holder of any
mortgage or deed of trust on the Building at least thirty (30) days' prior
written notice of such proposed action.
12.4 (a) Tenant hereby waives its right of recovery against Landlord and
releases Landlord from any claim arising out of losses, claims, casualties or
other damages for which Landlord may otherwise be liable to the extent either
(i) such loss, claim, casualty or other damage would have been covered under
insurance coverage Tenant is required to maintain pursuant to this Article XII
(without regard to any deductible) or (ii) Tenant receives insurance proceeds on
account of any such losses, claims, casualties or other damages. Each policy of
property insurance obtained by Tenant pursuant to the provisions of this Article
XII shall include a waiver of the insurer's right of subrogation against
Landlord, and shall contain an endorsement to the effect that any loss payable
under such policy shall be payable notwithstanding any act or negligence of
Landlord, or any agent, contractor or employee of Landlord, which might, absent
such agreement, result in the forfeiture of payment for such loss.
(b) Landlord hereby waives its right of recovery against Tenant and
releases Tenant from any claim for which Tenant may otherwise be liable arising
out of losses, claims, casualties or other damages to the extent either (i) such
loss, claim, casualty or other damage would have been covered under insurance
coverage Landlord is required to maintain pursuant to this Article XII (without
regard to any deductible) or (ii) Landlord receives insurance proceeds on
account of any such losses, claims, casualties or other damages. Each policy of
property insurance obtained by Landlord with respect to the Building shall
include a waiver of the insurer's right of subrogation against Tenant, and shall
contain an endorsement to the effect that any loss payable under such policy
shall be payable notwithstanding any act or negligence of Tenant, or any agent,
contractor or employee of Tenant, which might, absent such agreement, result in
the forfeiture of payment for such loss.
ARTICLE XIII
SERVICES AND UTILITIES
13.1 Landlord will furnish to the Premises during the normal hours of
operation of the Building (as set forth hereinbelow) air-conditioning and
heating during the seasons and within the temperature ranges required in
accordance with the specifications attached hereto as Exhibit D. Landlord will
provide: electricity; water; elevator service; an access-control system for the
Building (excluding the Premises); and exterior window-cleaning service. The
normal hours of operation of the Building will be 7:30 a.m. to 7:00 p.m. on
Monday
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through Friday (except the holidays listed on Exhibit E attached hereto) and
8:00 a.m. to 12:00 p.m. on Saturday (except the holidays listed on Exhibit E).
If Tenant requires air-conditioning or heat beyond the normal hours of
operation, then Landlord will furnish the same. Tenant shall pay for such extra
service in accordance with Landlord's then-current schedule of costs and
assessments for such extra service (including additional depreciation of the
base building systems in proportion to the actual number of hours beyond the
normal hours of operation for which Tenant is furnished such HVAC services),
which shall compensate Landlord for Landlord's actual costs of furnishing such
extra service, without markup. Landlord agrees to provide an access control
system for the Building that will afford Tenant access to the Premises
twenty-four (24) hours per day every day of the year. At Tenant's option and
expense, Landlord's system may be expanded to provide electronic suite access to
the Premises, and Landlord will reasonably coordinate any interaction between
Tenant's suite access system and the base-building access system. Landlord shall
not be permitted to require persons entering the Building to show identification
to a lobby attendant without Tenant's prior written consent. At least one (1)
elevator serving the Premises shall be in service at all times. Except as
otherwise specified herein, Landlord shall not be required to furnish services
and utilities during hours other than the normal hours of operation of the
Building unless Tenant agrees to compensate Landlord for the actual costs,
without markup, of such services and utilities.
13.2 It is understood and agreed that Landlord shall not have any liability
to Tenant whatsoever as a result of Landlord's inability to furnish any of the
utilities or services required to be furnished by Landlord under the terms of
this Lease, whether resulting from breakdown, removal from service for
maintenance or repairs, strikes, scarcity of labor or materials, acts of God,
governmental requirements or from any other cause whatsoever. It is further
agreed that, except as provided in this Section 13.2, any such inability to
furnish the utilities or services required hereunder shall not be considered an
eviction, actual or constructive, of Tenant from the Premises, and shall not
entitle Tenant to terminate this Lease or to an abatement of any rent payable
hereunder. Notwithstanding the foregoing or anything else in this Lease, in the
event that Tenant is prevented from using, and does not use, the Premises or any
portion thereof for five (5) consecutive business days or for ten (10) business
days in any twelve (12) month period (the "Eligibility Period") as a result of
(i) any interruption of utilities or services or access (including elevator
access) or any repair, maintenance or alteration performed by Landlord after the
Lease Commencement Date (other than repairs undertaken pursuant to Article XVI
hereof) which renders the Premises inaccessible or untenantable, or (ii) the
presence of Hazardous Materials in, on or around the Building which could, in
Tenant's reasonable business judgment and taking into account any Legal
Requirements with respect to Hazardous Materials, pose a health risk to
occupants of the Premises (the foregoing circumstances being referred to herein
as "Suspension Events"), then all base rent and additional rent payable
hereunder shall be reduced after expiration of the Eligibility Period for such
time that Tenant continues to be so prevented from using, and does not use, the
Premises or a portion thereof, in the proportion that the rentable area of the
portion of the Premises that Tenant is prevented from using, and does not use,
bears to the total rentable area of the Premises. However, in the event that
Tenant is prevented from so conducting, and does not conduct, its business in
any portion of the Premises for a period of time in excess of the Eligibility
Period, and the remaining portion of the Premises is not sufficient to allow
Tenant to effectively conduct its business therein, and if Tenant does not
conduct its business in such remaining portion, then for such time after
expiration of the Eligibility Period during which Tenant is so prevented from
effectively conducting its business therein, all base rent and additional rent
payable hereunder for the entire Premises shall be abated. In the event Tenant
is prevented from using, and does not use, substantially the entire Premises for
a period in excess of seventy-five (75) days after an Eligibility Period because
of the occurrence of a Suspension Event, then Tenant shall have the right to
terminate this Lease by notice delivered to Landlord while such Suspension Event
is continuing. For purposes of this Section 13.2, Tenant shall be deemed not to
be using or conducting its business in the Premises (or a portion thereof) if at
least ninety percent (90%) of Tenant's personnel that would otherwise be in
occupancy of the Premises (or such portion thereof) are actually not present in
the Premises (or such portion thereof) by reason of the Suspension Event.
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13.3 Tenant shall have the right, at its option, to either (a) employ its
own contractor or personnel to furnish char and janitorial service to the
Premises, in which event Tenant (i) shall pay for such services directly to the
contractor employed by Tenant for such purpose and (ii) Tenant's janitorial
contractor, and the cleaning specifications incorporated into Tenant's contract
with its janitorial contractor, shall be subject to Landlord's prior written
approval, which shall not be unreasonably withheld, conditioned or delayed; or
(b) Tenant may at any time during the Lease Term, request that Landlord arrange
for janitorial service to be furnished to the Premises by Landlord's janitorial
contractor.
13.4 In the event Tenant determines that the services being furnished by
any contractor (excluding the property management company) employed by Landlord
are unsatisfactory, in Tenant's reasonable judgment, Tenant shall deliver
written notice to Landlord specifying in detail the manner in which the services
are deemed deficient. If the deficiencies are not, in Tenant's reasonable
judgment, substantially corrected during the next succeeding sixty (60) days,
then Tenant may deliver a further notice to Landlord advising Landlord of such
fact, and, provided Landlord will not incur any liability to the contractor as a
result thereof, Landlord shall terminate the contract of such deficient
contractor and select a qualified replacement contractor.
13.5 Landlord agrees (a) to bid all contracts (excluding the service
contract for the property management company) for the operation of the major
services provided to the Building to at least three (3) service providers
reasonably acceptable to Tenant and (b) to keep Tenant reasonably apprised of
the bidding process by, among other things, notifying Tenant of the various bid
proposals received and Landlord's final selection of a particular service
provider. Landlord shall have the right to select such service provider from
among the three (3) who provided bids for each particular service, in the
exercise of its commercially reasonable judgment.
ARTICLE XIV
LIABILITY OF LANDLORD AND TENANT
14.1 Landlord shall not be liable to Tenant, its employees, agents,
business invitees, licensees, customers, clients, family members or guests for
any damage, injury, loss, compensation or claim, including, but not limited to,
claims for the interruption of or loss to Tenant's business, based on, arising
out of or resulting from any cause whatsoever (except as hereinbelow set forth),
including but not limited to the following: (i) repairs to any portion of the
Premises or the Building; (ii) interruption in the use of the Premises; (iii)
any accident or damage resulting from the use or operation (by Landlord, Tenant
or any other person or persons) of elevators, or of the heating, cooling,
electrical or plumbing equipment or apparatus; (iv) the termination of this
Lease by reason of the destruction of the Premises or the Building; (v) any
fire, robbery, theft, mysterious disappearance and/or any other casualty; (vi)
the actions of other tenants in the Building, if any, or of any other person or
persons; and (vii) any leakage in any part or portion of the Premises or the
Building, or from water, rain or snow that may leak into, or flow from, any part
of the Premises or the Building, or from drains, pipes or plumbing fixtures in
the Building; provided, however, that Landlord shall not be released pursuant to
this Section 14.1 from any liability (i) resulting directly from Landlord's
breach of, or default as to, any of its covenants, warranties or other
obligations under this Lease, or (ii) subject to Section 12.4(a) above, property
damage, personal injury or death caused directly by Landlord's or its agents' or
employees' negligence or willful misconduct. In no event (notwithstanding
anything in the immediately-preceding sentence to the contrary) shall Landlord
have any liability to Tenant for any claims based on the interruption of or loss
to Tenant's business.
14.2 Tenant hereby agrees to indemnify, defend on request, and hold
Landlord harmless from and against all costs, damages, claims, liabilities and
expenses (including reasonable attorneys' fees and any costs of litigation)
suffered by or claimed against Landlord, directly or indirectly, and not to be
covered by the property insurance required to be maintained by Landlord
hereunder, based on, arising out of or resulting from (i)
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Tenant's use and occupancy of the Premises or the business conducted by Tenant
therein, (ii) any accident, injury or damage whatsoever caused to any person, or
to the property of any person, occurring on or about the Premises during the
Lease Term, (iii) any act or omission to act by Tenant or its employees,
contractors, agents, licensees, or invitees, or (iv) any breach or default by
Tenant in the performance or observance of its covenants or obligations under
this Lease; provided that Tenant's obligations to indemnify and hold harmless
Landlord pursuant to this Section 14.2 shall not include any costs, damages,
claims, liabilities, or expenses suffered by or claimed against Landlord
directly based on, arising out of or resulting from any negligence or willful
misconduct of Landlord or its agents or employees.
14.3 In the event that at any time Landlord shall sell or transfer the
Building, provided the purchaser or transferee assumes the obligations of
Landlord hereunder, the Landlord named herein shall not be liable to Tenant for
any obligations or liabilities based on or arising out of events or conditions
occurring on or after the date of such sale or transfer. Furthermore, upon such
assumption, Tenant agrees to attorn to any such purchaser or transferee upon all
the terms and conditions of this Lease.
14.4 In the event that at any time during the Lease Term Tenant shall have
a claim against Landlord, Tenant shall not have the right to deduct the amount
allegedly owed to Tenant from any rent or other sums payable to Landlord
hereunder (except to the extent expressly provided in Section 14.6 below), it
being understood that Tenant's sole remedy for recovering upon such claim shall
be to institute an independent action against Landlord.
14.5 Tenant agrees that in the event Tenant is awarded a money judgment
against Landlord, Tenant's sole recourse for satisfaction of such judgment shall
be limited to execution against Landlord's equity interest in the Building and
the Land at the time of such execution and any insurance proceeds received by
Landlord in connection therewith. In no event shall Landlord or any partner or
member of Landlord or any other person be held to have any personal liability
for satisfaction of any claims or judgments that Tenant may have against
Landlord. Notwithstanding anything in this Lease to the contrary, the foregoing
limitation on Tenant's right to execute against Landlord's assets other than
Landlord's equity in the Building and the Land shall not be applicable to any
obligation of Landlord with respect to any work to be performed and/or any funds
to be disbursed by Landlord pursuant to the terms of the Work Agreement attached
hereto as Exhibit B.
14.6 In the event Landlord shall be in default with respect to any service
or action that Landlord is obligated to furnish or perform under this Lease,
then Tenant shall have the right to obtain such service or perform such act on
Landlord's account; provided, however, that Tenant shall have the rights set
forth in this Section 14.6 with respect to services and actions that affect the
structure of the Building, any common area or any base-building system only if
Tenant gives Landlord written notice of Landlord's alleged default and Landlord
does not in good faith dispute such alleged default in writing within ten (10)
business days following the delivery of Tenant's notice. Prior to Tenant
undertaking any action to cure or remedy such condition, Tenant shall first give
written notice of such condition to Landlord and Landlord's lender(s) of whose
identity and notice address Tenant has been informed and allow Landlord and such
lender(s) ten (10) business days following receipt by Landlord and such
lender(s) of such written notice to cure or remedy the condition specified in
Tenant's notice; provided, however, that if such condition cannot be cured
within the ten (10) business day period, such period shall be extended for a
reasonable additional time, so long as Landlord or such lender(s) commence to
cure such condition within the ten (10) business day period and proceed
diligently thereafter to effect such cure. If Landlord or such lender(s) fail to
cure or remedy such condition within such time period, then Tenant may cure or
remedy such condition and deliver an invoice to Landlord for such costs and
expenses, and Landlord shall pay to Tenant the amount of such invoice within
thirty (30) days after delivery by Tenant. The amount of such expenses, when
paid by Landlord, shall be included within Operating Expenses, to the extent
such costs and expenses are not excluded from the definition of Operating
Expenses. In the event Landlord fails to pay to Tenant when due any sum which
Tenant is entitled to recover from Landlord
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pursuant to this Section 14.6, then Tenant shall have the right to a credit
against annual base rent in the amount of any such unpaid sum if Tenant has
obtained a final, nonappealable court judgment that such sum was due and payable
to Tenant under the terms of this Section 14.6 but was wrongfully withheld by
Landlord. In the event Tenant seeks to cure or remedy any condition which gives
rise to Tenant's remedies set forth in this Section 14.6, Tenant shall (i)
proceed in accordance with the applicable provisions of this Lease and all
applicable Legal Requirements; (ii) use only such contractors, suppliers, etc.
as are duly licensed in the Commonwealth of Virginia and insured to effect such
repairs and who perform such repairs on first-class buildings in the normal
course of their business; (iii) promptly effect such repairs in a good
workmanlike quality and in a first-class manner; and (iv) use new or other
first-quality materials. Landlord agrees to cooperate with Tenant in the
performance of repairs by Tenant's contractors, including granting access to
portions of the Building outside the Premises and making available for
inspection and copying any plans that might be required by such contractors.
14.7 Landlord hereby agrees to indemnify, defend on request, and hold
Tenant harmless from and against all costs, damages, claims, liabilities and
expenses (including reasonable attorneys' fees and any costs of litigation)
suffered by or claimed against Tenant, directly or indirectly, and not to be
covered by the property insurance required to be maintained by Tenant hereunder,
based on, arising out of or resulting from (i) Landlord's ownership, use and
operation of the Building or any portion thereof other than the Premises, (ii)
any accident, injury or damage whatsoever caused to any person, or to the
property of any person, occurring on or about the Building other than within the
Premises, (iii) any act or omission to act by Landlord or its employees,
contractors, agents, licensees, or invitees, or (iv) any breach or default by
Landlord in the performance or observance of its covenants or obligations under
this Lease; provided that Landlord's obligations to indemnify and hold harmless
Tenant pursuant to this Section 14.7 shall not include any costs, damages,
claims, liabilities, or expenses suffered by or claimed against Tenant directly
based on, arising out of or resulting from any negligence or willful misconduct
of Tenant or its agents or employees.
ARTICLE XV
RULES AND REGULATIONS
15.1 Tenant agrees to comply with and observe the rules and regulations
pertaining to the use and occupancy of the Premises or the Building set forth in
Exhibit F attached hereto, together with all reasonable amendments thereto as
may be promulgated hereafter by Landlord (collectively, the "Rules and
Regulations"); provided that (i) any such amendment shall not increase Tenant's
monetary obligations hereunder or cause Tenant to incur significant additional
costs or adversely affect the rights expressly granted to Tenant hereunder or
Tenant's use and enjoyment of the Premises, (ii) Tenant shall be given written
notice of such amendment at least thirty (30) days before it takes effect, and
(iii) if there is any inconsistency between this Lease and the Rules and
Regulations, this Lease shall govern. Tenant's failure to keep and observe said
Rules and Regulations after applicable notice and opportunity to cure shall
constitute an Event of Default under this Lease. Landlord shall not enforce the
Rules and Regulations in a manner that discriminates against Tenant.
ARTICLE XVI
DAMAGE OR DESTRUCTION
16.1 If, during the Lease Term, the Premises or the Building are totally or
partially damaged or destroyed from any cause, thereby rendering the Premises
totally or partially inaccessible or unusable by Tenant for its business,
Landlord shall diligently (taking into account the time necessary to effectuate
a satisfactory settlement with any insurance company involved) restore, replace
and repair the Premises and the Building to substantially the same condition
they were in prior to such damage within one hundred eighty (180) days after the
occurrence of such damage; provided, however, if (i) in the reasonable judgment
of an independent architect selected by Landlord the repairs, replacement and
restoration cannot be completed within one hundred eighty
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(180) days after the occurrence of such damage, including the time needed for
removal of debris, preparation of plans and issuance of all required
governmental permits, or (ii) more than fifty percent (50%) of the Building is
rendered inaccessible or unusable for at least one hundred eighty (180) days as
a result of such damage, then Landlord shall have the right, at its sole option,
to terminate this Lease by giving written notice of termination to Tenant within
sixty (60) days after the occurrence of such damage. If this Lease is terminated
pursuant to the preceding sentence, all rent payable hereunder shall be
equitably apportioned and paid to the date of the occurrence of such damage or
destruction, and neither Landlord nor Tenant shall have any further rights or
remedies as against each other pursuant to this Lease accruing after the date of
termination.
16.2 If the independent architect selected by Landlord determines in its
reasonable discretion that the repairs and restoration cannot be completed
within one hundred eighty (180) days after the date of such damage or
destruction but that Landlord does not elect to terminate this Lease pursuant to
Section 16.1, then Landlord shall promptly notify Tenant of such determination.
For a period continuing through the tenth (10th) day after receipt of such
notice, Tenant shall have the right to terminate this Lease by providing written
notice thereof to Landlord, in which event the Lease Term shall end on the date
of the giving of such notice as if such date were the date originally provided
herein as the end of the Lease Term. If Tenant does not elect to terminate this
Lease within such period, and provided Landlord does not elect to terminate this
Lease, then Landlord shall proceed to repair and restore the Premises and the
Building. Notwithstanding any provision herein to the contrary, if Landlord does
not restore, replace and repair the Premises and the Building to substantially
the same condition they were in prior to such damage by the later of (i) one
hundred eighty (180) days after the occurrence of such damage or (ii) the date
by which it had been projected that Landlord's work would be completed, then
Tenant shall have the right, at any time thereafter before the restoration has
been completed, to terminate this Lease by delivering thirty (30) days' written
notice of termination to Landlord. If Landlord completes such restoration within
thirty (30) days following the delivery of Tenant's termination notice, then the
termination notice shall be rendered void, and this Lease shall continue in
force and effect. If Landlord has not completed such restoration within thirty
(30) days following the delivery of Tenant's termination notice, then the Lease
Term shall end on the thirtieth (30th) day after the delivery of Tenant's
termination notice as if such date were the date originally provided herein as
the end of the Lease Term.
16.3 Notwithstanding anything to the contrary contained herein, in the
event the Premises is damaged during the last two (2) years within the Lease
Term, and if the period of time reasonably projected by Landlord for restoration
of the damage (taking into account the time necessary to effectuate a
satisfactory settlement with any insurance company involved) exceeds one-fourth
( 1/4th) of the time remaining in the Lease Term as of the date of the damage,
then Landlord and Tenant shall each have the right to terminate this Lease by
written notice delivered to the other party within fifteen (15) days after
Landlord notifies Tenant in writing of the projected restoration period;
provided, however, that if (i) Landlord exercises its right of termination under
this Section 16.3, and (ii) at such time, Tenant has a right to renew the Lease
Term pursuant to Article XXVI hereof, and (iii) Tenant notifies Landlord in
writing, within fifteen (15) days following the delivery of Landlord's
termination notice, that Tenant is exercising its right to renew the Lease Term,
and (iv) pursuant to Article XXVI, Landlord and Tenant either reach agreement
concerning the Market Rent applicable to the Renewal Term or cause such
determination to be made by the means described in Section 26.3(b), then
Landlord's termination notice shall be deemed nullified and this Lease shall
continue in force and effect through the remainder of the Lease Term (as thus
renewed).
16.4 If this Lease is not terminated in accordance with the provisions of
Sections 16.1, 16.2 or 16.3, until the repair and restoration of the Premises is
completed Tenant shall be required to pay base rent and additional rent only for
that part of the Premises that Landlord and Tenant mutually agree, in their
reasonable judgment, that Tenant is able to use (as such use is contemplated by
this Lease) while repairs are being made, based on the ratio that the amount of
usable rentable area bears to the total rentable area in the Premises.
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Landlord shall bear the costs and expenses of repairing and restoring the
Premises. In addition to any abatement granted pursuant to the previous
sentence, Tenant's abatement period shall continue until Tenant has been given
sufficient time, and sufficient access to the Premises, to (i) rebuild any
portion of the Premises it is required to rebuild, (ii) install its property,
furniture, fixtures, and equipment, and (iii) move in over one (1) weekend.
16.5 If Landlord repairs and restores the Premises as provided in this
Article XVI, Landlord shall not be required to repair or restore any
decorations, alterations or improvements to the Premises previously made by or
at the expense of Tenant (other than the Leasehold Work installed pursuant to
Exhibit B hereto) or any trade fixtures, furnishings, equipment or personal
property belonging to Tenant. It shall be Tenant's sole responsibility to repair
and restore all such items.
ARTICLE XVII
CONDEMNATION
17.1 If (i) more than twenty percent (20%) of the rentable area of the
Premises, or (ii) the use or occupancy of more than twenty percent (20%) of the
rentable area of the Premises, shall be taken or condemned by any governmental
or other authority having the power of eminent domain for any public or
quasi-public use or purpose (including a sale thereof under threat of such a
taking) (each such event being referred to herein as a "Taking"), then this
Lease shall terminate on the date title thereto (or the right to use or occupy,
as appropriate) vests in such governmental or quasi-governmental authority, and
all base rent and additional rent payable hereunder shall be equitably
apportioned as of such date. If less than twenty percent (20%) of the rentable
area of the Premises or the use or occupancy thereof is condemned, then this
Lease shall continue in full force and effect as to the part of the Premises not
condemned, except that (i) as of the date title (or the right to use or occupy,
as appropriate) vests in such authority base rent and Expenses with respect to
the part of the Premises condemned shall be equitably reduced for the balance of
the Lease Term, and (ii) Landlord shall, at its cost, restore the Premises to
create, to the extent reasonably possible, a single unit of space, including
(but not limited to) building or moving demising walls, suite entries, heating
and air conditioning equipment, and utility lines.
17.2 All awards, damages and other compensation paid by the condemning
authority on account of such Taking shall belong to Landlord, and Tenant hereby
assigns to Landlord all rights to such awards, damages and compensation. Tenant
agrees not to make any claim against Landlord or the condemning authority for
any portion of such award or compensation attributable to damages to the
Premises, the value of the unexpired term of this Lease, the loss of profits or
goodwill, leasehold improvements or severance damages. Nothing contained herein,
however, shall prevent Tenant from pursuing a separate claim against the
condemning authority for the value of furnishings, equipment and trade fixtures
installed in the Premises at Tenant's expense and for relocation expenses,
provided that such claim does not in any way diminish the award or compensation
payable to or recoverable by Landlord in connection with such taking or
condemnation.
ARTICLE XVIII
DEFAULT
18.1 The occurrence of any of the following shall constitute an Event of
Default by Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of base rent or
additional rent when due and such failure shall continue uncured for a period of
ten (10) days after Landlord notifies Tenant of such failure in writing;
provided, however, that after Landlord has given Tenant two (2) such written
notices with respect to the payment of base rent in any twelve (12)-month
period, Tenant shall be in default if any payment of base rent
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accruing during such twelve (12)-month period (and after the second of such
notices) is not made within ten (10) days after such payment is due (without the
necessity of any notice being sent by Landlord).
(b) If Tenant shall fail to pay when due any other payment required by
this Lease (other than base rent or additional rent), and such failure shall
continue for a period of ten (10) days after Landlord notifies Tenant, in
writing, of such failure.
(c) If Tenant shall violate or fail to perform any other term,
condition, covenant or agreement to be performed or observed by Tenant under
this Lease and such violation or failure shall continue uncured for a period of
thirty (30) days after Landlord notifies Tenant in writing of such failure. If
such violation or failure is not capable of being cured within such thirty
(30)-day period, Tenant shall not be deemed to be in default hereunder if Tenant
commences curative action within such thirty (30)-day period and proceeds
diligently and in good faith thereafter to cure such violation or failure until
completion.
(d) An Event of Bankruptcy as defined in Article XIX hereof.
18.2 If there shall occur an Event of Default under this Lease, including
without limitation an Event of Default prior to the Lease Commencement Date,
Landlord shall have the right, at its sole option, to terminate this Lease. In
addition, with or without terminating this Lease, Landlord may re-enter,
terminate Tenant's right of possession, and take possession of the Premises. In
the event of an Event of Default resulting from Tenant's failure to pay any base
rent or additional rent, the provisions of this Article XVIII shall operate as a
notice to quit, and Tenant waives any other notice to quit or notice of
Landlord's intention to re-enter the Premises or terminate this Lease. If
necessary, Landlord may proceed to recover possession of the Premises under and
by virtue of the laws of the Commonwealth of Virginia, or (in the event of an
Event of Default resulting from Tenant's failure to pay any base rent or
additional rent only) by such other proceedings, including re-entry and
possession, as may be applicable. If Landlord terminates this Lease and/or
terminates Tenant's right of possession, then everything contained in this Lease
on the part of Landlord to be done and performed shall cease without prejudice,
however, to the right of Landlord to recover from Tenant all rent and other sums
due under this Lease. Whether or not this Lease and/or Tenant's right of
possession is terminated by reason of Tenant's default, Landlord shall have the
right, after any Event of Default occurs and so long as such Event of Default
continues, to grant or withhold any consent or approval pursuant to this Lease
in its sole and absolute discretion. Landlord agrees to use reasonable efforts
to relet the Premises for such rent and upon such terms as are not unreasonable
under the circumstances, and if the full rental provided herein plus the
reasonable costs, expenses and damages hereafter described shall not be realized
by Landlord, Tenant shall be liable for all damages sustained by Landlord,
including, without limitation, deficiency in base rent and additional rent,
reasonable attorneys' fees, brokerage fees, and the expenses of placing the
Premises in the condition that would have been required if the date of
termination had been the date of expiration of the Lease Term. Tenant expressly
acknowledges that Landlord's agreement to use reasonable efforts to relet the
Premises shall in no event limit, restrict or prejudice in any way Landlord's
and Landlord's affiliates' and agents' rights to lease other space in the
Building prior to reletting the Premises. Landlord shall in no way be
responsible or liable for any failure to relet the Premises or any part thereof,
or any failure to collect any rent due or accrued upon such reletting, to the
end and intent that Tenant may be liable for the base rent, additional rent, and
any and all other items of cost and expense which Tenant shall have been
obligated to pay throughout the remainder of the Lease Term. Any damages or loss
of rent sustained by Landlord may be recovered by Landlord, at Landlord's
option, at the time of the reletting, or in separate actions, from time to time,
as said damage shall have been made more easily ascertainable by successive
relettings, or, at Landlord's option, may be deferred until the expiration of
the Lease Term, in which event Tenant hereby agrees that the cause of action
shall not be deemed to have accrued until the date of expiration of the Lease
Term. The provisions contained in this Section 18.2 shall not prevent the
enforcement of any claim Landlord may have against Tenant for anticipatory
breach of this Lease.
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18.3 As an alternative to recovering damages on account of rental
deficiencies on a periodic basis as set forth in Section 18.2 above, Landlord
may recover as liquidated damages an amount equal to the present value (as of
the date of the termination of this Lease) of the difference between (i) the
base rent and additional rent which would have become due during the remainder
of the Lease Term, and (ii) the fair market rental value of the Premises for the
same period, which damages shall be payable to Landlord in one lump sum on
demand. For purpose of this Section, present value shall be computed by
discounting at a rate equal to the "Prime Rate" as published in the Money Rates
section of The Wall Street Journal.
18.4 All rights and remedies of Landlord set forth herein are in addition
to all other rights and remedies available to Landlord at law or in equity. All
rights and remedies available to Landlord hereunder or at law or in equity are
expressly declared to be cumulative. The exercise by Landlord of any such right
or remedy shall not prevent the concurrent or subsequent exercise of any other
right or remedy. No delay in the enforcement or exercise of any such right or
remedy shall constitute a waiver of any default by Tenant hereunder or of any of
Landlord's rights or remedies in connection therewith. Landlord shall not be
deemed to have waived any default by Tenant hereunder unless such waiver is set
forth in a written instrument signed by Landlord. If Landlord waives in writing
any default by Tenant, such waiver shall not be construed as a waiver of any
covenant, condition or agreement set forth in this Lease except as to specific
circumstances described in such written waiver.
18.5 If Landlord shall institute proceedings against Tenant and a
compromise or settlement thereof shall be made, the same shall not constitute a
waiver of default or of any other covenant, condition or agreement set forth
herein, nor of any of Landlord's rights hereunder, except to the extent agreed
by Landlord in writing in connection with such compromise or settlement. Neither
the payment by Tenant of a lesser amount than the installments of base rent,
additional rent or of any sums due hereunder nor any endorsement or statement on
any check or letter accompanying a check for payment of rent or other sums
payable hereunder shall be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such rent or other sums or to pursue any other remedy available
to Landlord. Notwithstanding any request or designation by Tenant, Landlord may
apply any payment received from Tenant to any payment then due. No re-entry by
Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered
an acceptance of a surrender of this Lease.
18.6 If Tenant defaults in the making of any payment or in the doing of any
act herein required to be made or done by Tenant, then Landlord may (after
giving Tenant the appropriate notice and opportunity to cure specified in
Section 18.1 hereof), but shall not be required to, make such payment or do such
act. If Landlord elects to make such payment or do such act, all reasonable
costs and expenses incurred by Landlord, plus interest thereon at the rate per
annum which is two percent (2%) higher than the publicly announced "prime rate"
then being charged by The Riggs National Bank of Washington, D.C., from the date
paid by Landlord to the date of payment thereof by Tenant, shall constitute
additional rent hereunder and shall be immediately paid by Tenant to Landlord;
provided, however, that nothing contained herein shall be construed as
permitting Landlord to charge or receive interest in excess of the maximum rate
then allowed by law. The taking of such action by Landlord shall not prevent
Landlord from pursuing any remedy it is otherwise entitled to in connection with
such default.
18.7 If Tenant fails to make any payment of base rent or of additional rent
on or before the date such payment is due and payable, Tenant shall pay to
Landlord a late charge of five percent (5%) of the amount of such payment. In
addition, such payment shall bear interest at the rate per annum which is two
percent (2%) higher than the publicly announced "prime rate" then being charged
by The Riggs National Bank of Washington, D.C., from the date such payment
became due to the date of payment thereof by Tenant; provided, however, that
nothing contained herein shall be construed as permitting Landlord to charge or
receive interest in
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excess of the maximum rate then allowed by law. Such late charge and interest
shall constitute additional rent due and payable hereunder with the next
installment of base rent due hereunder.
18.8 Notwithstanding anything in this Lease to the contrary, in the event
(i) an Event of Default shall occur under this Lease and (ii) Tenant shall
thereafter tender performance of the obligation that gave rise to such Event of
Default and (iii) Landlord, in its discretion, shall agree to accept such
performance as curing the Event of Default, then, for all purposes of this
Lease, no Event of Default shall thereafter be deemed to exist.
ARTICLE XIX
BANKRUPTCY
19.1 The following shall be an Event of Bankruptcy under this Lease:
(a) Tenant's becoming insolvent, as that term is defined in Title 11
of the United States Code (the "Bankruptcy Code"), or under the insolvency laws
of the Commonwealth of Virginia (the "Insolvency Laws");
(b) The filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
(c) The filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which either (i) is
not dismissed within ninety (90) days of filing or (ii) results in the issuance
of an order or relief against the debtor; or
(d) Tenant's making or consenting to an assignment for the benefit of
creditors or a common law composition of creditors.
19.2 (a) Upon occurrence of an Event of Bankruptcy, Landlord shall have all
rights and remedies available to Landlord pursuant to Article XVIII, provided
that while a case in which Tenant is the subject debtor under the Bankruptcy
Code is pending and only for so long as Tenant or its Trustee in Bankruptcy
(hereinafter referred to as "Trustee") is in compliance with the provisions of
Section 19.2(b), (c) and (d) below, Landlord shall not exercise its rights and
remedies pursuant to Article XVIII.
(b) In the event Tenant becomes the subject debtor in a case pending
under the Bankruptcy Code, Landlord's right to terminate this Lease pursuant to
Section 19.2(a) shall be subject to the rights of Trustee to assume or assign
this Lease. Trustee shall not have the right to assume or assign this Lease
unless Trustee promptly (i) cures all defaults under this Lease, (ii)
compensates Landlord for monetary damages incurred as a result of such defaults,
and (iii) provides adequate assurance of future performance on the part of
Tenant as debtor in possession or on the part of the assignee tenant.
(c) Landlord and Tenant hereby agree in advance that adequate
assurance of future performance, as used in Section 19.2(b) above, shall mean
that all of the following minimum criteria must be met: (i) Tenant's gross
receipts in the ordinary course of business during the thirty (30) day period
immediately preceding the initiation of the case under the Bankruptcy Code must
be at least two (2) times greater than the next monthly installment of annual
base rent and additional rent due under this Lease; (ii) both the monthly
average and median of Tenant's gross receipts in the ordinary course of business
during the six month period immediately preceding the initiation of the case
under the Bankruptcy Code must be at least two (2) times greater than the next
monthly installment of annual base rent and additional rent due under this
Lease; (iii) Tenant must pay its estimated pro rata share of the cost of all
services provided by Landlord (whether or not previously included as a part of
the annual base rent) in advance of the performance or provision of such
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services; (iv) Trustee must agree that Tenant's business shall be conducted in a
first-class manner and that no liquidating sales, auctions or other
non-first-class business operations shall be conducted on the Premises; (v)
Trustee must agree that the use of the Premises as stated in this Lease will
remain unchanged and that no prohibited use shall be permitted; and (vi) Tenant
or Trustee must agree to pay to Landlord at any time Landlord is authorized to
and does draw on the escrow account the amount necessary to restore such escrow
account to the original level required by Section 19.2(c)(iii).
(d) In the event Tenant is unable to (i) cure its defaults, (ii) pay
the rent due under this Lease and all other payments required of Tenant under
this Lease on time (or within five (5) days of the due date), or (iii) meet the
criteria and obligations imposed by Section 19.2(c) above, Tenant agrees in
advance that it has not met its burden to provide adequate assurance of future
performance and this Lease may be terminated by Landlord in accordance with
Section 19.2(a) above.
ARTICLE XX
SUBORDINATION; MORTGAGES
20.1 This Lease is subject and subordinate to the lien of any and all
mortgages (which term "mortgages" shall include both construction and permanent
financing and shall include deeds of trust and similar security instruments)
which may now or hereafter encumber the Land or the Building, and to all and any
renewals, extensions, modifications, recastings or refinancings thereof;
provided, however, that the effectiveness of such subordination is subject to
the condition that Landlord obtain from any holder of any such mortgage or deed
of trust on the Land or the Building a non-disturbance agreement, to the end and
intent that as long as Tenant pays all rent when due and punctually observes all
other covenants and obligations on its part to be observed under this Lease
(subject to applicable notice and cure provisions), the terms and conditions of
this Lease (specifically including, but not limited to, the expansion rights
granted under Article XXIV and the renewal right granted under Article XXVI)
shall continue in full force and effect and Tenant's rights under this Lease and
its possession, use and occupancy of the Premises shall not be disturbed during
the term of this Lease by the holder of such mortgage or deed of trust or by any
purchaser upon foreclosure of such mortgage or deed of trust. At any time after
the execution of this Lease, the holder of any mortgage to which this Lease is
subordinate shall have the right to declare this Lease to be superior to the
lien of such mortgage, and Tenant agrees to execute all documents required by
such holder in confirmation thereof.
20.2 In confirmation of the foregoing subordination, Tenant shall, at
Landlord's request, promptly execute and deliver any requisite or appropriate
certificate or other document evidencing such subordination. Provided the holder
has granted the required nondisturbance agreement, Tenant agrees that neither
the institution of any suit, action or other proceeding by the holder of any
mortgage on the Land or the Building to realize upon such mortgage holder's
interest in the Land or the Building, nor any sale of the Land or the Building
pursuant to the provisions of the mortgage in favor of such mortgage holder,
shall, by operation of law or otherwise, result in the cancellation or
termination of this Lease or of the obligations of Tenant hereunder, and that
Tenant shall attorn to the purchaser at such foreclosure sale and shall
recognize such purchaser as the landlord under this Lease. Tenant further agrees
that for the purposes of this Section 20.2, the term "purchaser" or "purchaser
at a foreclosure sale" shall mean, without limitation, a purchaser at a
foreclosure sale affecting the Land or the Building or the holder of any
mortgage on the Land or the Building. Tenant agrees that upon such attornment,
such purchaser shall not (a) be bound by any rent credits or payments of annual
base rent or additional rent for more than one (1) month in advance, (b) be
bound by any amendment of this Lease made without the consent of any lender
providing financing for the Building, (c) be liable for damages for any act or
omission of any prior landlord; or (d) be subject to any offsets or defenses
which Tenant might have against any prior landlord; provided, however, that
after succeeding to Landlord's interest under this Lease, such purchaser shall
perform in accordance with the terms of this Lease all obligations of Landlord
arising after the date such
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purchaser acquires title to the Building. Upon request by such purchaser, Tenant
shall execute and deliver an instrument or instruments confirming its
attornment.
20.3 (a) After Tenant receives notice in writing from any person, firm or
other entity that it holds a mortgage or deed of trust on the Building or the
Land requesting that copies of notices from Tenant to Landlord be sent to it, no
notice from Tenant to Landlord alleging any default by Landlord shall be
effective unless and until a copy of the same is given to such holder or
Trustee; provided, however, that Tenant shall have been furnished with the name
and address of such holder or Trustee. The curing of any of Landlord's defaults
by such holder or Trustee shall be treated as performance by Landlord.
(b) In addition to the time afforded Landlord for the curing of any
default, any such holder or Trustee shall have an additional thirty (30) days
after the expiration of the period allowed to Landlord for the cure of any such
default within which to commence a cure; provided that this Section 20.3(b)
shall not extend any period that Tenant must forebear from exercising its rights
and remedies pursuant to Section 13.2 above.
20.4 Landlord shall endeavor to obtain the agreement of any lender
providing financing secured by a mortgage or deed of trust on the Land or the
Building to furnish Tenant with a copy of any notice furnished to Landlord
declaring the existence of a default by Landlord under such mortgage or deed of
trust; provided, however, that (i) Landlord shall not be required to refuse
financing offered by a lender who will not agree to give such notice to Tenant,
and (ii) Landlord shall not be responsible for ensuring that a lender who has
agreed to give such notice to Tenant fulfills such agreement.
ARTICLE XXI
HOLDING OVER
21.1 In the event that Tenant shall not immediately surrender the Premises
on the date of the expiration of the Lease Term, Tenant shall become a tenant by
the month. During the first sixty (60) days of such holdover period, Tenant
shall pay a rent equal to one hundred twenty-five percent (125%) of the base
rent and all additional rent in effect during the last month of the Lease Term.
In the event such holdover period extends beyond sixty (60) days, then the rent
shall be adjusted, retroactively to the first day of the holdover period, to
equal the greater of (i) one hundred ten percent (110%) of fair market rental
value for the Premises in its then-existing condition or (ii) one hundred
twenty-five percent (125%) of the base rent and all additional rent in effect
during the last month of the Lease Term. Said monthly tenancy shall commence on
the first day following the expiration of the Lease Term. As a monthly tenant,
Tenant shall be subject to all the terms, conditions, covenants and agreements
of this Lease. Tenant shall give to Landlord at least thirty (30) days' written
notice of any intention to vacate the Premises, and Tenant shall be entitled to
thirty (30) days' written notice to quit the Premises, unless Tenant is in
default hereunder, in which event Tenant shall not be entitled to any notice to
quit, the usual thirty (30) days' notice to quit being hereby expressly waived.
Notwithstanding the foregoing provisions of this Section 21.1, in the event that
Tenant shall hold over after the expiration of the Lease Term, and if Landlord
shall desire to regain possession of the Premises promptly at the expiration of
the Lease Term, then at any time prior to Landlord's acceptance of rent from
Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith
re-enter and take possession of the Premises by any legal process in force in
the Commonwealth of Virginia.
ARTICLE XXII
COVENANTS OF LANDLORD
22.1 Landlord covenants that it has the right to make this Lease for the
term aforesaid, and Landlord covenants that Tenant shall, during the term hereby
created, freely, peaceably and quietly occupy and enjoy the full possession of
the Premises without disturbance, molestation or hindrance by any person
whatever claiming
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an interest in the Premises prior or superior to Tenant's. Nothing in this
Section 22.1, however, shall prevent Landlord from exercising any remedy
available to it on account of an Event of Default by Tenant under this Lease.
Tenant acknowledges and agrees that its leasehold estate in and to the Premises
vests on the date this Lease is executed, notwithstanding that the Lease Term
will not commence until a future date.
22.2 Landlord hereby reserves to itself and its successors and assigns the
following rights (all of which are hereby consented to by Tenant): (i) if
required by applicable law in Landlord's reasonable judgment, to change the
street address and/or the arrangement and/or location of entrances, passageways,
doors, doorways, corridors, elevators (other than those designated for the
exclusive use of Tenant), stairs, toilets, or other public parts of the Building
(provided that if Landlord changes the street address of the Building for any
reason other than to comply with a Legal Requirement, then Landlord shall pay
Tenant's reasonable costs of replacing its stationery); and (ii) subject to the
provisions of Section 13.2 hereof, to erect, use and maintain pipes and conduits
in and through the Premises. Provided Landlord acts reasonably and in a manner
not likely to interfere materially with Tenant's business, Landlord may exercise
any or all of the foregoing rights without being deemed to be guilty of an
eviction, actual or constructive, or a disturbance or interruption of the
business of Tenant or of Tenant's use or occupancy of the Premises.
22.3 Landlord represents and warrants that, to the best of its knowledge
and belief, there are no Hazardous Materials on, in or under the Land or the
Building. Landlord covenants not to bring any Hazardous Materials onto the Land
or the Building. Notwithstanding the foregoing, Landlord or its agents may use
and store within the Building reasonable quantities of customary office and
cleaning supplies; provided such items are stored, used and disposed of in
accordance with applicable Legal Requirements. If any Legal Requirements require
an investigation into the presence of any Hazardous Materials, or if any
Hazardous Materials are actually discovered and Legal Requirements require
abatement, remediation or removal, Landlord shall, at its sole cost and expense,
abate, remediate and remove all such Hazardous Materials as required by the
applicable Legal Requirements. Landlord shall indemnify and hold Tenant harmless
from any and all claims, damages, fines, judgments, penalties, costs,
liabilities or losses arising during or after the Lease Term and arising from
Landlord's breach of this Section 22.3.
ARTICLE XXIII
PARKING
23.1 At all times during the Lease Term, Tenant shall be granted, at no
charge to Tenant, 3.6 parking permits per 1,000 square feet of rentable area in
the initial Premises, for parking in the surface parking area (or in any parking
deck substituted for the surface parking area) located immediately adjacent to
the Building. In the event Tenant leases any expansion space in the Building,
Tenant shall be granted 3.6 additional parking permits per 1,000 square feet of
rentable area in such expansion space. At Tenant's request, Landlord agrees to
designate a reasonable number of spaces convenient to the entrance to the lobby
of the Building as being reserved for Tenant's visitors, and such spaces shall
be counted against the parking permits allocated to Tenant pursuant to this
Section 23.1, at no additional charge to Tenant. In addition to the foregoing,
Tenant shall be provided reserved or dedicated visitor spaces at the same ratio
of rentable square feet leased to parking spaces as any other tenant of the
Building who is granted such parking spaces and at the same cost per space as
such tenant.
23.2 It is understood and agreed that Landlord does not assume any
responsibility for, and shall not be held liable for, any damage or loss to any
automobiles parked in the parking area or to any personal property located
therein, or for any injury sustained by any person in or about the parking area,
unless proximately caused by the action or omission of Landlord or any of its
employees or agents.
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ARTICLE XXIV
EXPANSION
24.1 Landlord agrees that until March 31, 1998, it will not lease or market
for lease any of the office space in the Building that is not initially leased
by Tenant pursuant to this Lease. Any space that is thus being held off the
market shall, during the period that it is thus being held off the market, be
referred to herein as the "Withheld Space." Tenant shall have the right to lease
all or any portion of the Withheld Space (the "Expansion Option") upon the same
terms and conditions as the initial Premises, including a tenant improvement
allowance of $25.00 per rentable square foot, by written notice delivered to
Landlord during the period that the Withheld Space is being held off the market;
provided, however, that if Tenant elects to lease any portion of the Withheld
Space that is not a full floor, then the configuration of the space that Tenant
leases hereunder must be reasonably acceptable to Landlord.
24.2 [Intentionally deleted.]
24.3 From and after April 1, 1998, Tenant shall have a right of first offer
to lease any office space ("Option Space") that is available in the Building
prior to the initial leasing of such space to another tenant. Tenant's right to
lease any such space (each of which spaces is referred to herein as an "Option
Space") shall be subject to the following terms and conditions:
(a) Except as provided below, Landlord shall not enter into a lease
for any Option Space without first giving Tenant written notice (an "Option
Notice") that such Option Space is available for leasing and granting Tenant the
opportunity to enter into a lease of the Option Space in accordance with this
Section 24.3. The Option Notice shall identify the relevant Option Space and the
annual base rent and other economic terms and conditions for the lease of such
space.
(b) Tenant shall have a period of five (5) business days following
receipt of the Option Notice to notify Landlord in writing whether Tenant
desires to lease the entirety of the Option Space described in the Option
Notice, time being of the essence. The leasing of the Option Space shall be on
the annual base rent and other economic terms and conditions set forth in the
Option Notice (it being agreed that the "legal" (i.e., non-economic and
non-transaction specific) terms of such lease shall be the same as in this
Lease). In the event that Tenant does not timely notify Landlord that Tenant
desires to lease the Option Space that is the subject of the Option Notice, then
Landlord shall be free to lease such Option Space to any other party on such
terms and conditions as Landlord in its sole discretion may determine; provided,
however, that in the event Landlord proposes to lease such Option Space to a
third party at a net effective rental rate that is less than ninety-five percent
(95%) of the net effective rental rate offered to Tenant in the Option Notice,
then Landlord shall re-offer such Option Space to Tenant by delivering to Tenant
another Option Notice setting forth the terms and conditions offered to such
third party and following the procedures set forth above with respect to the
first such offer of such Option Space to Tenant.
(c) If Tenant leases any Option Space hereunder, Landlord shall
deliver possession of the Option Space to Tenant promptly following Tenant's
election to lease such Option Space, and the term of Tenant's leasing of such
Option Space shall commence on such delivery date and shall be coterminous with
the term for the initial Premises. To afford Tenant an opportunity to construct
any initial improvements desired by Tenant in the Option Space, Tenant's
obligation to pay rent with respect to the Option Space shall not commence until
the earlier of (i) sixty (60) days after the date on which possession of the
Option Space is delivered to Tenant, or (ii) the date on which Tenant commences
to conduct business within the Option Space.
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(d) Notwithstanding anything in this Section 24.3 to the contrary, at
Landlord's election, Tenant shall have no right to lease any Option Space at any
time during the existence of an Event of Default under this Lease.
24.4 From and after April 1, 1998, Tenant also shall have a right of first
offer to lease any Option Space in the Building that becomes available for
leasing following the initial leasing of such space to another tenant. Tenant's
right to lease any Option Space shall be subject to the following terms and
conditions:
(a) Except as provided below, Landlord shall not enter into a new
lease for any Option Space that will commence after the expiration or
termination of the initial lease of such space without first giving Tenant an
Option Notice that such Option Space is or will be becoming available for
leasing and granting Tenant the opportunity to enter into a lease of the Option
Space in accordance with this Section 24.4. The Option Notice shall identify the
relevant Option Space and the date on which such Option Space is expected to be
available for delivery to Tenant.
(b) Tenant shall have a period of five (5) business days following
receipt of the Option Notice to notify Landlord in writing whether Tenant
desires to lease the Option Space, time being of the essence. The leasing of the
Option Space shall be for an annual base rent equal to the Market Rent (as
defined in, and determined in accordance with the provisions of, Sections 26.3
and 26.4 below, except that the parties shall have a period of five (5) business
days to reach agreement upon the Market Rent, whereupon, if the parties have not
reached agreement upon the Market Rent, either Tenant shall have rescinded its
exercise of its right to lease the Option Space or the Market Rent for the
Option Space shall be determined by the three-broker mechanism set forth in
Section 26.3) and additional rent on account of all Expenses incurred during the
term of Tenant's leasing of the Option Space, it being agreed that the "legal"
(i.e., non-economic and non-transaction specific) terms of such lease shall be
the same as in this Lease. In the event Tenant does not timely notify Landlord
that Tenant desires to lease the Option Space, then Landlord shall be free to
lease such Option Space to any other party on such terms and conditions as
Landlord in its sole discretion may determine.
(c) Tenant shall have the right to lease either (i) the entirety of
any Option Space offered to Tenant hereunder, or (ii) any full floor(s)
contained within the Option Space, and/or (iii) any partial floor contained
within the Option Space (but not a portion of any full floor contained within
the Option Space). Tenant's notice exercising its right to lease the Option
Space shall specify whether Tenant will lease the entirety of the Option Space
or a portion thereof permitted pursuant to clause (ii) and/or (iii) above.
(d) If Tenant leases any Option Space hereunder, Landlord shall
deliver possession of the Option Space to Tenant on the day following the date
on which the Option Area is vacated by the prior tenant thereof, and the term of
Tenant's leasing of such Option Space shall commence on such delivery date and
shall be coterminous with the term for the initial Premises. Landlord shall
incur no liability, and the expiration date of the term for which the Option
Space is leased shall not be extended, if Landlord is unable to deliver
possession of the Option Space to Tenant due to any holdover tenant's refusal to
vacate, or for any other reason not within Landlord's control. Landlord agrees
to use reasonable efforts to evict any such holdover tenant and to obtain
possession of the Option Space as soon as reasonably possible. Any Option Space
which is leased to Tenant shall be delivered by Landlord in its "as is"
condition. To afford Tenant an opportunity to construct any initial improvements
desired by Tenant in the Option Space, Tenant's obligation to pay rent with
respect to the Option Space shall not commence until the earlier of (i) sixty
(60) days after the date on which possession of the Option Space is delivered to
Tenant, or (ii) the date on which Tenant commences to conduct business within
the Option Space.
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(e) Notwithstanding anything in this Section 24.4 to the contrary, at
Landlord's election, Tenant shall have no right to lease any Option Space at any
time during the existence of an Event of Default under this Lease.
(f) Notwithstanding anything in this Section 24.4 to the contrary,
Tenant's rights under this Section 24.4 are subject and subordinate to all
renewal and expansion rights that may hereafter be granted to any party leasing
space in the Building, provided that such rights are granted in the leases of
such parties and, with respect to expansion rights, are for specifically defined
areas of space, and no space in the Building shall be deemed to be an Option
Space hereunder unless and until Landlord is preparing to market it for lease to
the general public.
24.5 [Intentionally deleted]
ARTICLE XXV
[INTENTIONALLY DELETED]
ARTICLE XXVI
RENEWAL
26.1 Landlord hereby grants to Tenant the conditional right, exercisable at
Tenant's option, to renew the term of this Lease for two (2) terms (each, a
"Renewal Term") of sixty (60) months each. If exercised, and if the conditions
applicable thereto have been satisfied, the first Renewal Term shall commence
immediately following the end of the Lease Term provided in this Lease and the
second Renewal Term shall commence immediately following the end of the first
Renewal Term. The right of renewal herein granted to Tenant with respect to each
Renewal Term shall be subject to, and shall be exercised in accordance with, the
following terms and conditions:
(a) Tenant shall exercise its right of renewal with respect to each
Renewal Term by giving Landlord written notice thereof not earlier than
twenty-four (24) months and not later than twelve (12) months prior to the
expiration date of the then-current Lease Term. Tenant's exercise of its right
of renewal shall be irrevocable (except as provided in Section 26.3(a) below)
and shall be binding upon both Landlord and Tenant.
(b) In the event a renewal option notice is not given timely, Tenant's
right of renewal with respect to such Renewal Term shall lapse and be of no
further force or effect.
(c) A renewal option may be exercised either with respect to the
entire Premises (including all expansion space theretofore leased by Tenant) or
with respect to a "Divisible Portion of the Premises" (as hereinbelow defined).
Tenant's renewal option notice shall specify whether Tenant is exercising its
right of renewal with respect to the entire Premises or with respect to a
Divisible Portion of the Premises, and (if applicable) shall identify the
Divisible Portion of the Premises with specificity. As used herein, the term
"Divisible Portion of the Premises" shall mean a portion of the Premises
consisting of at least seventy-five percent (75%) of the rentable area contained
in the Premises at the time of Tenant's exercise of its renewal option, all of
which space shall be contiguous. In the event Tenant desires to extend the term
of this Lease with respect to a portion of the Premises consisting of less than
seventy-five percent (75%) of the rentable area contained in the Premises but at
least 25,000 rentable square feet, Section 26.2 below shall not apply and
Landlord and Tenant may enter into negotiations with respect to the terms and
conditions that would govern such an extension of the Lease Term (which terms
and conditions may differ from both the economic and the non-economic terms set
forth herein). In the event Tenant desires to extend the term of this Lease with
respect to a portion of the Premises consisting of less than 25,000 rentable
square feet, Landlord shall have no obligation to agree to an extension of the
Lease Term with respect to such a reduced portion of the Premises.
- 36 -
<PAGE> 38
(d) In the event an Event of Default under this Lease has occurred and
has continued for ten (10) business days on the date a renewal option notice is
sent or any time thereafter up to and including the date such Renewal Term is to
commence, then, at Landlord's option, such Renewal Term shall not commence and
the Lease Term shall expire at the date the Lease Term would have expired
without such renewal.
(e) In the event this Lease is not renewed for the first Renewal Term,
Tenant's right to renew this Lease for the second Renewal Term shall also lapse.
In the event this Lease is renewed for the first Renewal Term with respect to
only a Divisible Portion of the Premises, then Tenant's right to renew this
Lease for the second Renewal Term shall apply only to such Divisible Portion of
the Premises.
26.2 During any Renewal Term, all the terms, conditions, covenants and
agreements set forth in this Lease shall continue to apply and be binding upon
Landlord and Tenant, except that: (1) the annual base rent shall be calculated
at the beginning of the Renewal Term so that the annual base rent payable during
each Lease Year of such Renewal Term shall be equal to ninety-five percent (95%)
of Market Rent for the Renewal Term, including a market-based formula for
adjusting Market Rent for each year of such Renewal Term; and (2) in no event
shall Tenant have the right to renew the Lease Term beyond the expiration of the
second Renewal Term provided for in Section 26.1 or in the event this Lease is
terminated as provided in the other provisions of this Lease.
26.3 "Market Rent" shall be the fair market amount of "net" annual base
rent (including escalations) determined as follows:
(a) Following the giving of the renewal option notice, Landlord and
Tenant shall commence negotiations concerning the amount of base rent that shall
constitute Market Rent. The parties shall have thirty (30) days after the date
Tenant delivers its renewal option notice in which to agree on such Market Rent.
If, during such negotiation period, the parties are unable to agree on such
Market Rent, then Tenant shall have the right to rescind its exercise of the
renewal option by notice of rescission delivered to Landlord no later than the
expiration of such thirty (30) day period.
(b) In the event Landlord and Tenant do not reach agreement concerning
the Market Rent, but Tenant does not timely exercise the right of rescission
described in subsection (a) above, then Landlord and Tenant shall each designate
an independent, licensed real estate broker within seven (7) days from the
expiration of the thirty (30) day period described in subsection (a) above, who
shall have more than eight (8) years' experience as a real estate broker
specializing in commercial office leasing and who shall be familiar with the
commercial real estate market in which the Building is located. Said brokers
shall each determine the Market Rent within fifteen (15) days. If the lower of
the two determinations is not less than ninety-five percent (95%) of the higher
of the two determinations, then the Market Rent shall be the average of the two
determinations. If the lower of the two determinations is less than ninety-five
percent (95%) of the higher of the two determinations, then the two brokers
shall render separate written reports of their determinations and within fifteen
(15) days thereafter the two brokers shall appoint a third broker with like
qualifications. Such third broker shall be furnished the written reports of the
first two brokers. Within fifteen (15) days after the appointment of the third
(3rd) broker, the third broker shall determine the Market Rent. If three brokers
are used to determine Market Rent, then, for purposes of this Section 26.3,
Market Rent shall equal the average of the two closest determinations; provided,
however, that (i) if any one determination is agreed upon by any two of the
brokers, then the Market Rent shall be such determination, and (ii) if any one
determination is equidistant from the other two determinations, then the Market
Rent shall be such middle determination. Landlord and Tenant shall each bear the
cost of its broker and shall share equally the cost of the third broker.
(c) Among the factors to be considered in determining Market Rent
shall be the rental rates then being obtained for leases of similar space, size
and terms in the Building and in other comparable office
- 37 -
<PAGE> 39
buildings of a similar class in Reston, Virginia. All determinations shall
reflect market conditions expected to exist as of the date that base rent based
on Market Rent is to commence (including base rents and escalations, rental
abatements, construction allowances, parking and other tenant concessions,
operating expense and tax pass-through provisions, and other terms expected to
be agreed to in market leases entered into at such time).
ARTICLE XXVII
COMMUNICATIONS EQUIPMENT
27.1 (a) Tenant may install, free of charge, at its sole cost, risk and
expense, satellite dishes and communications equipment (the "Communications
Equipment") on the roof of the Building, in an amount and of a type mutually
agreed to by Landlord and Tenant, subject in all events to the availability of
suitable space on the roof of the Building (to be determined in Landlord's
reasonable discretion) and subject further to Landlord's prior written approval
of plans and specifications for the Communications Equipment and the type and
placement of all cabling and wiring ancillary thereto, which approval shall not
be unreasonably withheld with respect to matters that do not affect the
structure of the Building. Landlord makes no representation concerning the
suitability of the rooftop as a location for Tenant's Communications Equipment,
and Landlord's approval of Tenant's plans and specifications shall in no event
be construed as constituting such a representation. Tenant shall be responsible
for obtaining and maintaining all approvals, permits and licenses required by
any federal, state or local government for installation and operation of the
Communications Equipment and for paying all fees attendant thereto and for
complying with all other Legal Requirements relating to the Communications
Equipment. If the Communications Equipment is installed, Tenant shall have sole
responsibility for the maintenance, repair and replacement thereof and of all
cabling and wiring ancillary thereto. Tenant shall coordinate with Landlord's
property manager concerning any penetration of the roof or the exterior facade
of the Building, and shall in no event take any action that will void any
then-existing roof warranty. All repairs to the Building made necessary by
reason of the furnishing, installation, maintenance, operation or removal of the
Communications Equipment or any replacements thereof shall be at Tenant's sole
cost. Upon expiration or termination of this Lease, Tenant agrees that it will
remove, forthwith, the Communications Equipment and any wiring or accessories
associated with the Communications Equipment and shall repair any damage to the
Building caused by the installation or removal of the Communications Equipment
and related equipment. In the event Tenant fails to remove the Communications
Equipment and associated equipment, Landlord may remove and dispose of such
Communications Equipment and associated equipment and charge Tenant the entire
reasonable cost thereof. Tenant's Communications Equipment shall not interfere
with the structure of the Building, any of the building systems, or the
equipment (including airwaves reception and other equipment) of any other tenant
in the Building. Tenant's rights pursuant to this Section 27.1 shall be
non-exclusive. Landlord shall have no liability on account of any damage to or
interference with the operation of the Communications Equipment by any third
party. Notwithstanding the foregoing, Landlord agrees that it will manage the
available space on the rooftop so as to accommodate Tenant's needs with respect
to the Communications Equipment to the greatest extent reasonably possible,
including requesting that other tenants or rooftop users relocate their
equipment if such relocation is necessary to enable Tenant to operate its
Communications Equipment. Landlord shall have the right to require Tenant to
relocate the Communications Equipment at Landlord's cost to another suitable
location on the rooftop, provided such relocation can be done at a time and in a
manner that only minimally and temporarily interferes with Tenant's use of the
Communications Equipment.
(b) Tenant also shall be permitted to install, free of charge, at its
sole cost and expense, a back-up power generator and a supplemental HVAC system,
each in a location to be mutually agreed upon by Landlord and Tenant, and all
necessary feeders and conduits extending from such generator and/or supplemental
HVAC system to the Premises. Tenant shall be responsible for complying with all
Legal Requirements relating to such generator and supplemental HVAC system.
- 38 -
<PAGE> 40
ARTICLE XXVIII
[INTENTIONALLY DELETED]
ARTICLE XXIX
[INTENTIONALLY DELETED]
ARTICLE XXX
GENERAL PROVISIONS
30.1 Tenant acknowledges that neither Landlord nor any broker, agent or
employee of Landlord has made any representations or promises with respect to
the Premises or the Building except as herein expressly set forth, and no
rights, privileges, easements or licenses are being acquired by Tenant except as
herein expressly set forth.
30.2 Nothing contained in this Lease shall be construed as creating a
partnership or joint venture of or between Landlord and Tenant, or to create any
other relationship between the parties hereto other than that of landlord and
tenant.
30.3 Landlord and Tenant each represents and warrants to the other that
neither of them has employed or dealt with any broker, agent or finder in
carrying on the negotiations relating to this Lease other than Barnes, Morris,
Pardoe & Foster, Inc., who shall be paid a commission by Landlord pursuant to
the terms of a separate agreement. Each party shall indemnify and hold the other
harmless from and against any claim or claims for brokerage or other commissions
asserted by any other broker, agent or finder engaged by the indemnifying party
or with whom the indemnifying party has dealt in connection with this Lease.
30.4 Tenant agrees, at any time and from time to time, upon not less than
fifteen (15) days' prior written notice by Landlord, to execute, acknowledge and
deliver to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or if there have been any
modifications, that the Lease is in full force and effect as modified and
stating the modifications); (ii) stating the dates to which the rent and any
other charges hereunder have been paid by Tenant; (iii) stating whether or not,
to the best knowledge of Tenant, Landlord is in default in the performance of
any covenant, agreement or condition contained in this Lease, and if so,
specifying the nature of such default; (iv) stating the address to which notices
to Tenant are to be sent; and (v) stating such other information as Landlord or
any mortgagee or prospective mortgagee of the Building may reasonably request.
Any such statement delivered by Tenant may be relied upon by any landlord of the
Building or the land upon which it is situated, any prospective purchaser of the
Building or such land, any mortgagee or prospective mortgagee of the Building or
such land or of Landlord's interest therein, or any prospective assignee of any
such mortgagee. Landlord agrees, at any time and from time to time, upon not
less than fifteen (15) days' prior written notice by Tenant, to execute,
acknowledge and deliver to Tenant a statement in writing (i) certifying that
this Lease is unmodified and in full force and effect (or if there have been any
modifications, that the Lease is in full force and effect as modified and
stating the modifications); (ii) stating the dates to which the rent and any
other charges hereunder have been paid by Tenant; (iii) stating whether or not,
to the best knowledge of Landlord, Tenant is in default in the performance of
any covenant, agreement or condition contained in this Lease, and if so,
specifying the nature of such default; (iv) stating the address to which notices
to Landlord are to be sent; and (v) stating such other information as Tenant may
reasonably request.
30.5 Landlord and Tenant each hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of them against the other in
connection with any matter arising out of or in any way connected with this
Lease, the relationship of landlord and tenant hereunder, Tenant's use or
occupancy of the Premises,
- 39 -
<PAGE> 41
and/or any claim of injury or damage. Landlord hereby waives any statutory or
other landlord's lien available under the laws of the Commonwealth of Virginia
or otherwise.
30.6 All notices, waivers, demands, requests or other communications
required or permitted hereunder shall, unless otherwise expressly provided, be
in writing and be deemed to have been properly given, served and received (a) if
delivered by messenger, when delivered (with receipt therefor), (b) if mailed,
on the third (3rd) business day after deposit in the United States Mail,
certified or registered, postage prepaid, return receipt requested, or (c) if
delivered by reputable overnight express courier, freight prepaid, the next
business day after delivery to such courier; in every case addressed to the
party to be notified as follows. Either party may change its address for the
giving of notices by notice given in accordance with this Section.
If to Landlord:
Boston Properties Limited Partnership
c/o Boston Properties, Inc.
500 E Street, S.W.
Washington, D.C. 20024
Attn: Raymond A. Ritchey
and a copy to:
Boston Properties, Inc.
8 Arlington Street
Boston, MA 02116
Attn: General Counsel
If to Tenant before occupancy:
Landmark Systems Corporation
8000 Towers Crescent Drive
Vienna, VA 22182
Attn: Corporate Services Manager
and a copy to:
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attn: Steven L. Meltzer, Esq.
If to Tenant after occupancy:
Landmark Systems Corporation
at the Premises
Attn: Corporate Services Manager
and a copy to:
Shaw, Pittman, Potts & Trowbridge
- 40 -
<PAGE> 42
2300 N Street, N.W.
Washington, D.C. 20037
Attn: Steven L. Meltzer, Esq.
30.7 If any provision of this Lease or the application thereof to any
person or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of this Lease shall be valid and
enforced to the fullest extent permitted by law.
30.8 Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution.
30.9 The provisions of this Lease shall be binding upon, and shall inure to
the benefit of, the parties hereto and each of their respective representatives,
successors and assigns, subject to the provisions hereof restricting assignment
or subletting by Tenant.
30.10 This Lease contains and embodies the entire agreement of the parties
hereto and supersedes all prior agreements, negotiations and discussions between
the parties hereto. Any representation, inducement or agreement that is not
contained in this Lease shall not be of any force or effect. This Lease may not
be modified or changed in whole or in part in any manner other than by an
instrument in writing duly signed by both parties hereto.
30.11 This Lease shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
30.12 Article and section headings are used herein for the convenience of
reference and shall not be considered when construing or interpreting this
Lease.
30.13 The submission of an unsigned copy of this document to Tenant for
Tenant's consideration does not constitute an offer to lease the Premises or an
option to or for the Premises. This document shall become effective and binding
only upon the execution and delivery of this Lease by both Landlord and Tenant.
30.14 Time is of the essence of each provision of this Lease.
30.15 This Lease shall not be recorded, except that upon the request of
either party, the parties agree to execute, in recordable form, a short-form
memorandum of this Lease, provided that such memorandum shall not contain any of
the specific rental terms set forth herein and shall otherwise be mutually
acceptable to Landlord and Tenant. Such memorandum may be recorded in the land
records of Fairfax County in the Commonwealth of Virginia, and the party
desiring such recordation shall pay all recordation costs.
30.16 Except as otherwise provided in Section 4.5 of this Lease, any
additional rent owed by Tenant to Landlord, and any cost, expense, damage or
liability shall be paid by Tenant to Landlord no later than thirty (30) days
after the date Landlord notifies Tenant in writing of the amount of such
additional rent or such cost, expense, damage or liability. If any payment
hereunder is due after the end of the Lease Term, such additional rent or such
cost, expense, damage or liability shall be paid by Tenant to Landlord not later
than thirty (30) days after Landlord notifies Tenant of the amount of such
additional rent or such cost, expense, damage or liability.
- 41 -
<PAGE> 43
30.17 All of Tenant's duties and obligations hereunder, including but not
limited to Tenant's duties and obligations to pay base rent, additional rent and
the costs, expenses, damages and liabilities incurred by Landlord for which
Tenant is liable, shall survive the termination of this Lease for any reason
whatsoever.
30.18 In the event either Tenant or Landlord is in any way delayed,
interrupted or prevented from performing any of its respective obligations under
this Lease (other than Tenant's obligation to pay any rent due hereunder), and
such delay, interruption or prevention is due to fire, act of God, governmental
or quasi-governmental act (including, without limitation, any delay in the
issuance of required permits or in the scheduling or performance of required
inspections), strike, labor dispute, inability to procure materials or
utilities, or any other cause beyond Tenant's or Landlord's reasonable control
(whether similar or dissimilar) (all of which are collectively referred to
herein as "Force Majeure"), then Tenant or Landlord (as applicable) shall be
excused from performing the affected obligations for the period of such delay,
interruption or prevention.
30.19 Tenant and Landlord hereby each represent and warrant to the other
that all necessary corporate and/or partnership action has been taken to enter
into this Lease and that the person signing this Lease on behalf of Tenant and
Landlord, respectively, has been duly authorized to do so.
30.20 Any amounts required to be paid by Tenant under this Lease shall be
considered additional rent. Except as expressly provided herein, all payments of
additional rent shall be paid to Landlord without diminution, set-off or
deduction in the same manner as annual base rent pursuant to Section 3.3 hereof
or as may otherwise be provided in this Lease.
30.21 This Lease includes and incorporates Exhibits A, A-1, B, C, D, E, F
and G attached hereto.
30.22 Notwithstanding anything to the contrary contained in this Lease, in
no event shall Landlord or Tenant have any liability to the other for the
interruption of or loss to such other party's business or for any other indirect
damages or consequential losses.
- 42 -
<PAGE> 44
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal
on or as of the day and year first above written.
LANDLORD:
BOSTON PROPERTIES LIMITED PARTNERSHIP,
a Delaware limited partnership
WITNESS: By: Boston Properties, Inc., its general partner
By: /s/
- -------------------- --------------------------------------------
Title: Senior Vice President
--------------------------------------------
TENANT:
WITNESS: LANDMARK SYSTEMS CORPORATION, a Virginia corporation
By: /s/ Ralph Alexander
- -------------------- ---------------------------------------------
Title: President / COO
---------------------------------------------
- 43 -
<PAGE> 45
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "First Amendment") is made as of March 30,
1998, by and between BOSTON PROPERTIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Landlord"), and LANDMARK SYSTEMS CORPORATION, a Virginia
corporation ("Tenant").
WITNESSETH:
WHEREAS, pursuant to that certain Deed of Lease dated as of January 30,
1998 (the "Lease"), Landlord leased to Tenant certain space consisting of
approximately seventy-five thousand (75,000) rentable square feet of office
space (the "Premises") in the office building to be known as The Arboretum and
to be constructed on Sunrise Valley Drive in Reston, Virginia (the "Building"),
as more particularly described in the Lease;
WHEREAS, Tenant desires to exercise the Expansion Option contained in
Section 24.1 of the Lease to lease all of the Withheld Space, constituting
approximately twenty-five thousand (25,000) square feet of rentable area, as
more particularly described herein (the "First Amendment Space");
WHEREAS, Landlord and Tenant desire to amend the Lease in order to add the
First Amendment Space to the Premises, to more accurately set forth the
approximate number of rentable square feet constituting the Premises (as
expanded by the First Amendment Space) and to modify certain provisions in
connection with the addition to the Premises of the First Amendment Space,
subject to the terms and conditions set forth herein; and
WHEREAS, unless otherwise provided herein, all terms used in this First
Amendment that are defined in the Lease shall have the meanings provided for in
the Lease.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant, intending to
be legally bound, do hereby agree as follows'
1. The foregoing recitals are intended to be a material part of this
First Amendment and are incorporated herein by this reference.
2. Article I - The Premises.
a. Landlord does hereby lease and demise unto Tenant, and Tenant
does hereby hire, lease and accept from Landlord, the First
Amendment Space. Effective as of the date of this First
Amendment, (i) the First Amendment Space shall become a part of
the Premises, such that the Premises shall consist of
approximately ninety-five thousand five hundred eighty-four
(95,584) square feet of rentable area (which rentable area
calculation shall be confirmed in accordance with Sections 1. 1
(b) and 1.3 of the Lease), constituting the entire rentable area
of the Building, and (ii) the First Amendment Space shall be
subject to all of the terms and conditions of the Lease for the
remainder of the Lease Term.
<PAGE> 46
b. Pursuant to Section 1. 1 (b) of the Lease, a diagram of the
Premises in the form attached hereto as Attachment A shall be
added to the Lease as Exhibit A-1.
c. Notwithstanding anything to the contrary contained in Section 1.
1 (a) of the Lease, in connection with the addition to the
Premises of the First Amendment Space, no Premises Option
selection shall be required of Tenant pursuant to Section 1. 1
(a) of the Lease.
3. Article II - Term. The term of the Lease with respect to the First
Amendment Space shall be coterminous with the Lease Term for the initial
Premises. Notwithstanding anything to the contrary contained in the Lease, the
First Amendment Space and the initial Premises shall be considered together as
part of a single delivery of space for purposes of determining the Lease
Commencement Date, and accordingly, there shall be one and the same Lease
Commencement Date for the Premises, as increased by the First Amendment Space.
The Declaration to be executed by Landlord and Tenant pursuant to Section 2. 1
(c) of the Lease shall confirm the matters included thereon with respect to the
Premises, as increased by the First Amendment Space.
4. Article III - Base Rent. The annual base rent payable with respect to
the First Amendment Space shall be the product of the annual base rent per
rentable square foot payable with respect to the initial Premises for the
applicable Lease Years, as set forth in Article III Of the Lease, multiplied by
the number of square feet of rentable area constituting the First Amendment
Space and shall be paid in accordance with the terms and conditions contained in
Article III.
5. Article IV - Additional Rent. Tenant's proportionate share of
Operating Expenses and Tenant's proportionate share of Real Estate Taxes each
shall be calculated with respect to the Premises, as increased by the First
Amendment Space, and otherwise in accordance with Section 4.1 of the Lease.
6. Article XXIII - Parking. Pursuant to the terms of Section 23.1 of the
Lease, from and after the date hereof, Tenant shall be entitled to 3.6 parking
permits in the parking area for the Building for every 1,000 square feet of
rentable area constituting the First Amendment Space.
7. Article XXX - Section 30.3 - Brokers. Landlord and Tenant each
represent to the other that they had no dealings with any real estate broker,
finder or other person with respect to the First Amendment Space, except Bames,
Morris, Pardoe & Foster, Inc. (the "Broker"). Landlord shall pay any commissions
or fees that are payable to the Broker with respect to this Amendment, in
accordance with the terms of a separate commission contract.
8. Exhibit B - Work Agreement. All of the terms and conditions of the
Work Agreement attached to the Lease as Exhibit B shall be applicable to the
First, Amendment Space, including without limitation, the Improvements Allowance
provided pursuant to Paragraph 8(a) of Exhibit B in the amount of Twenty-Five
Dollars ($25) per square foot of rentable area of the Premises, as increased by
the First Amendment Space, and the Excess Allowance pursuant to Paragaph 8(c) of
Exhibit B in the amount of Five Dollars ($5) per square foot of rentable area of
the Premises, as increased by the First Amendment Space.
9. Except as otherwise expressly set forth herein, all other terms and
conditions of the Lease shall remain unmodified and in full force and effect.
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the date first above written.
LANDLORD:
BOSTON PROPERTIES LIMITED PARTNERSHIP, a
Delaware limited partnership
WITNESS: By: Boston Properties, Inc., its general partner
By: /s/
--------------------- --------------------------------------------
Title: Senior Vice President
--------------------------------------------
TENANT:
WITNESS: LANDMARK SYSTEMS CORPORATION, a Virginia corporation
By: /s/ Ralph Alexander
--------------------- --------------------------------------------
Title: President / COO
--------------------------------------------
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES OF THE COMPANY
LANDMARK SYSTEMS BENELUX BV
LANDMARK SYSTEMS FRANCE SARL
LANDMARK SYSTEMS GMBH
LANDMARK SYSTEMS HONG KONG
LANDMARK SYSTEMS NORDIC AB
LANDMARK SYSTEMS PACIFIC PTY LTD
LANDMARK SYSTEMS UK LTD
LANDMARK SYSTEMS SINGAPORE PTE LTD
LANDMARK SYSTEMS INTERNATIONAL, INC.
LANDMARK TECHNOLOGY HOLDINGS CORPORATION
-53-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos 333-46417 and 333-61161) of Landmark Systems
Corporation of our report dated February 29, 2000, relating to the consolidated
financial statements, appearing in Landmark Systems Corporation's Annual Report
on Form 10-K for the year ended December 31, 1999. We also consent to the
incorporation by reference of our report dated February 29, 2000, relating to
the financial statement schedule, which appears in this Form 10-K. We also
consent to the reference to us under the heading "Selected Financial Data" which
appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLC
McLean, Virginia
March 29, 2000
-54-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 32,135,952
<SECURITIES> 0
<RECEIVABLES> 14,782,865
<ALLOWANCES> 795,320
<INVENTORY> 0
<CURRENT-ASSETS> 55,578,055
<PP&E> 18,855,866
<DEPRECIATION> 13,492,593
<TOTAL-ASSETS> 76,506,755
<CURRENT-LIABILITIES> 26,332,085
<BONDS> 0
0
0
<COMMON> 128,381
<OTHER-SE> 37,813,513
<TOTAL-LIABILITY-AND-EQUITY> 76,506,755
<SALES> 25,340,034
<TOTAL-REVENUES> 55,202,434
<CGS> 1,324,108
<TOTAL-COSTS> 7,896,597
<OTHER-EXPENSES> 43,004,538
<LOSS-PROVISION> 109,392
<INTEREST-EXPENSE> 41,442
<INCOME-PRETAX> 6,395,373
<INCOME-TAX> 2,318,321
<INCOME-CONTINUING> 4,077,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,077,052
<EPS-BASIC> 0.33<F1>
<EPS-DILUTED> 0.31
<FN>
<F1>This amount is reported as EPS BASIC.
</FN>
</TABLE>
